Chapter 7 bankruptcy and tax attributes

[ChrisCPA]

I have my first bankruptcy client. I know the the debt cancellation is not taxable but I have read that the relief amount affects tax attributes. This particular client has a capital loss co. I am just checking in with this board to see if I am right in that the capital loss c/o will be reduced by the debt cancellation in a chapter 7 bankruptcy. Also do we get the 3000 loss in 2008 and then eliminate the remaining with the debt relief amount? Form 982 seems to be more of an informational form as it does not eliminate the capital loss co on the worksheet.

[RoyDaleOne]

In what year the case is closed determines the year to reduce the tax attributes.

http://search.irs.gov/web/query.html?col=a...=pub+bankruptcy

See Page 23 Pub 908

Does it involve a resident?

Also see

http://www.irs.gov/publications/p4681/ix01.html

and

http://www.irs.gov/newsroom/article/0,,id=174034,00.html

[LindaB]

"I have my first bankruptcy client. I know the the debt cancellation is not taxable ...."

If you look at form 982 line 1a is for 'discharge of indebtedness in a title 11 case' and I don't know if it will work for chapter 7 bankruptcy.

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"Form 982 seems to be more of an informational form as it does not eliminate the capital loss co on the worksheet."

There is a place in the ATX program to include a statement for part 2 of form 982 (tabs at the bottom of the page for form 982), I guess to describe reduction of tax attributes, but I can't see how it would carry over to anything else. I guess you would have to do it manually.