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  1. #1
    Join Date
    Jan 2012
    Posts
    3

    Default Basis Reductions Following Bankruptcy Discharge

    My question involves bankruptcy in the state of North Carolina:

    I've filed ch 7 bk, debts discharged were unsecured cc; mortgage on residence and mortgage on rental property. Properties are not abandoned; I still live in the residence, and rental is tenant occupied. (As long as mortgages are paid, banks will not foreclose).

    Tax Time: Persuant to discharge of debts via bankruptcy taxpayers have to do a reduction of basis on properties per IRC section 108(b)(1) "Attribute Reduction" & Treas. Reg. sec. 1.1017-1:

    (a) General rule for section 108(b)(2)(E). This paragraph (a) applies to basis reductions under section 108(b)(2)(E) that are required by section 108(a)(1) (A) or (B) because the taxpayer excluded discharge of indebtedness (COD income) from gross income. A taxpayer must reduce in the following order, to the extent of the excluded COD income (but not below zero), the adjusted bases of property held on the first day of the taxable year following the taxable year that the taxpayer excluded COD income from gross income (in proportion to adjusted basis):—

    (1) Real property used in a trade or business or held for investment, other than real property described in section 1221(1), that secured the discharged indebtedness immediately before the discharge;
    (2) Personal property used in a trade or business or held for investment, other than inventory, accounts receivable, and notes receivable, that secured the discharged indebtedness immediately before the discharge;
    (3) Remaining property used in a trade or business or held for investment, other than inventory, accounts receivable, notes receivable, and real property described in section 1221(1);
    (4) Inventory, accounts receivable, notes receivable, and real property described in section 1221(1); and
    (5) Property not used in a trade or business nor held for investment.

    Does any of the above mean the taxpayer's PRIMARY RESIDENCE OR RESIDENCE OR HOME?

    I'm trying to determine if I NEED to reduce the basis of my home. IF it does not then I'm thinking that I do not have to complete the attribute reduction of section II on form 982.

    Any comments?

  2. #2
    Join Date
    Sep 2005
    Location
    Behind a Desk
    Posts
    98,846

    Default Re: Basis Reductions Following Bankruptcy Discharge

    The basis reduction required by IRC §108(b)(2)(E) can potentially affect the basis of any asset that the taxpayer owns. You will need to discuss the details of your situation with your accountant.

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