Reducing basis in assets

[Gail in Virginia]

I have a client who has cancellation of debt income for their S-Corporation. They have depreciable assets that still have basis left, so I would like to reduce their basis in those tax attributes to eliminate the cancellation of debt income from their reportable income. How do I show this on ATX? I would like to keep the assets listed so that if and when they are sold I know that the basis is zero.

[Maribeth]

I have a client who has cancellation of debt income for their S-Corporation. They have depreciable assets that still have basis left, so I would like to reduce their basis in those tax attributes to eliminate the cancellation of debt income from their reportable income. How do I show this on ATX? I would like to keep the assets listed so that if and when they are sold I know that the basis is zero.

Increase your accumulated depreciation to show that the basis is zero. This adjustment is done as of the first of the year in which the cancellation of debt occured.

Maribeth

[BulldogTom]

I think the basis reduction takes place on the first day of the year after the cancellation takes place. In other words, you depreciate as you normally would in the year of the cancellation, and then reduce the basis for the following year.

Tom

Lodi, CA

[jainen]

>>Increase your accumulated depreciation.... reduce the basis for the following year<<

Maribeth and Bulldog Tom, you offer markedly different solutions. Would either of you care to cite a reference in support of your procedure?