Welcome to Law-Forums.org!   

Advertisments:




Sponsor Links:

Discount Legal Forms
Discounted Legal Texts


Reducint Tax Attributes

Discuss the legalities of Bankruptcy Law

Reducint Tax Attributes

Postby Tomo » Fri Nov 25, 2016 5:30 pm

s About Taxes)/reducint tax attributes Advertisement Expert: Bruce W. Tyler, EA - 7/4/2012 I have a question about how to reduce tax attributes on form 982 for the 2011 taxes. I have rounded the numbers for simplicity. I have COD reported on this form of 600,000. I am claiming insolvency as the exception for 550,000 of the COD and Bankrupcy for 50,000. The COD for insolvency happened before I filed bankrupcy. My current assets are  2 homes and personal belongings but no car. I have no other tax attributes to reduce. I have a primary home(lived in it for past 6 years) with basis of 1,000,000 and a loan of 800,000 and a secondary residence with a basis of 300,000 and loan of 290,000. My personal belongings have a basis(purchase price) of 100,000 and no loans. My assumption is that because I have total basis' of 1,400,000 and liabilitys of 1,090,000 that i can only reduce tax attributes by 310,000. I am not sure how to allocate the basis reduction. Do I reduce the primary home by 200,000 and the secondary home by 10,000 and the personal belongings by 100,000. My worry is that i have to reduce the basis of the secondary home by more than 10,000 meaning that when the home forcloses this year that I will owe tax on it. Any help will be appreciated

Thanks

ANSWER: Tax attributes are reduced in a certain order. I am going to assume you have no Net Operating Loss Carryovers, Passive Loss Carryovers, etc. You would reduce the tax attributes by the amount of CoD that you were able to exclude from income - in your case, $550,000. I am going to assume your calculation for insolvency is correct. Since your 2nd home is investment property, the basis on that home is reduced before your primary home. See IRS Reg 1.1017-1(a)(1),(a)2),(a(3),(a)(4) and(a)(5)here: http://www.taxalmanac.org/index.php/Treasury_Regulations,_Subchapter_A,_Sec._1.1

You must reduce tax attributes as of January 1 of the year *following* the Cancellation of Debt exclusion from income. So if the exclusion from income was in 2012, the basis reduction takes place as of Jan 1 of 2013. OK so your attributes to reduce total $550,000. Your 2nd home has a basis of $300,000 which now becomes zero(sorry). The attribute balance of $250,000 would reduce the basis of your primary home. Hope this helps. Please let me know if I was not clear. Take care,

Bruce W. Tyler, EA

Lancaster, CA 661-724-1041

---------- FOLLOW-UP ----------

Bruce,

Thank you for your response. I have a few questions for clarification. I was under the impression that I am limited in the basis reduction by difference between the basis of my property plus cash and my liabilities per IRS Reg 1.1017-1(b) 3. Meaning in my scanerio that I would only be able to reduce my basis by a total of 600,000(I had 50k of cod in bankruptcy and 550k through insolvency) is this impression not correct? Also if I have to reduce the basis of my second home to zero and it is foreclosed on in the year after bankruptcy discharged all my debts what would be if any the taxable income on the foreclosure if the loan on the home was 290k. Also what would be the income if any if there was a short sale of 200k on the home with a 290k loan in the year after bankruptcy discharged all my debts.

Thanks again for your expert help
Tomo
 
Posts: 41
Joined: Sat Jan 18, 2014 9:35 pm

Reducint Tax Attributes

Postby Merwyn » Sun Nov 27, 2016 8:31 am

You are correct the in the calculation of $600,000 of CoDI. The basis reduction is the amount of Cancellation of Debt that is excluded from income, not the difference between the basis in your assets and your liabilities. Insolvency is the difference between the Fair Market Value of your assets less your liabilities immediately before the discharge of debt.t.

You have enough basis to reduce - $600,000(I had mentioned $550,000 in my previous response to you). The basis of your investment property must be reduced first. If however the basis in all of your property was only, for example, $450,000, then only the $450,000 would be reduced since basis cannot go below 0.

If the 2nd home was foreclosed on with a basis of 0, then yes, there would be income to report. The "selling price" is the Fair Market Value of the home(assuming a recourse loan). If the basis on the 2nd home is 0, a short sale of $200,000 would result in 200,000 of income(less any selling costs). The amount you owe on the home has no bearing the gain or loss from its sale. If the loan is non-recourse, then the selling price on a foreclosure is the greater of the Fair Market Value of the home or the debt. EDIT: Aaron, I may not have clear about the basis reduction you asked about so I am going to try and explain it again. I stated that the basis reduction is the amount of debt excluded from income under insolvency, which is correct. What I did not elaborate on is that you are correct in that your basis reduction is limited to basis in your assets less any liabilities owed -- but these are calculated AFTER the cancellation of debt. For example, after the cancellation of debt, if the total adjusted basis in all property is $300,000 and your liabilities are $400,000, then no basis is reduced. Good article here if you want to read it: http://tinyurl.com/7gsx4xa

Bruce W. Tyler, EA

Lancaster, CA.

661-724-1041
Merwyn
 
Posts: 39
Joined: Sun Jan 05, 2014 4:17 pm

Reducint Tax Attributes

Postby Edwaldo » Sun Nov 27, 2016 3:59 pm

s About Taxes)/reducint tax attributes Advertisement Expert: Bruce W. Tyler, EA - 7/4/2012 I have a question about how to reduce tax attributes on form 982 for the 2011 taxes. I have rounded the numbers for simplicity. I have COD reported on this form of 600,000. I am claiming insolvency as the exception for 550,000 of the COD and Bankrupcy for 50,000. The COD for insolvency happened before I filed bankrupcy. My current assets are  2 homes and personal belongings but no car. I have no other tax attributes to reduce. I have a primary home(lived in it for past 6 years) with basis of 1,000,000 and a loan of 800,000 and a secondary residence with a basis of 300,000 and loan of 290,000. My personal belongings have a basis(purchase price) of 100,000 and no loans. My assumption is that because I have total basis' of 1,400,000 and liabilitys of 1,090,000 that i can only reduce tax attributes by 310,000. I am not sure how to allocate the basis reduction. Do I reduce the primary home by 200,000 and the secondary home by 10,000 and the personal belongings by 100,000. My worry is that i have to reduce the basis of the secondary home by more than 10,000 meaning that when the home forcloses this year that I will owe tax on it. Any help will be appreciated

Thanks

ANSWER: Tax attributes are reduced in a certain order. I am going to assume you have no Net Operating Loss Carryovers, Passive Loss Carryovers, etc. You would reduce the tax attributes by the amount of CoD that you were able to exclude from income - in your case, $550,000. I am going to assume your calculation for insolvency is correct. Since your 2nd home is investment property, the basis on that home is reduced before your primary home. See IRS Reg 1.1017-1(a)(1),(a)2),(a(3),(a)(4) and(a)(5)here: http://www.taxalmanac.org/index.php/Treasury_Regulations,_Subchapter_A,_Sec._1.1

You must reduce tax attributes as of January 1 of the year *following* the Cancellation of Debt exclusion from income. So if the exclusion from income was in 2012, the basis reduction takes place as of Jan 1 of 2013. OK so your attributes to reduce total $550,000. Your 2nd home has a basis of $300,000 which now becomes zero(sorry). The attribute balance of $250,000 would reduce the basis of your primary home. Hope this helps. Please let me know if I was not clear. Take care,

Bruce W. Tyler, EA

Lancaster, CA 661-724-1041

---------- FOLLOW-UP ----------

Bruce,

Thank you for your response. I have a few questions for clarification. I was under the impression that I am limited in the basis reduction by difference between the basis of my property plus cash and my liabilities per IRS Reg 1.1017-1(b) 3. Meaning in my scanerio that I would only be able to reduce my basis by a total of 600,000(I had 50k of cod in bankruptcy and 550k through insolvency) is this impression not correct? Also if I have to reduce the basis of my second home to zero and it is foreclosed on in the year after bankruptcy discharged all my debts what would be if any the taxable income on the foreclosure if the loan on the home was 290k. Also what would be the income if any if there was a short sale of 200k on the home with a 290k loan in the year after bankruptcy discharged all my debts.

Thanks again for your expert help
Edwaldo
 
Posts: 44
Joined: Mon Jan 06, 2014 8:48 pm


Return to Bankruptcy Law

 


  • Related topics
    Replies
    Views
    Last post
cron