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Debt Relief – Insolvency – Bankruptcy Information » Insolvency » Re Form 982 Insolvent cx mortgage debt (paid credit cards) and reduction of attributes.?

Re Form 982 Insolvent cx mortgage debt (paid credit cards) and reduction of attributes.?

The cx debt was $16,620.. The insolvent worksheet shows fmv assets $69,004. Liabilities $117,936.

Insolvent amount $48,932. I have read the publications regarding this, but need help with the attribute reduction part. I think it’s zero but some said it can’t be zero. Then I got confused.
The original cost basis of assets was $92,288, Liabilities after cx is $101,316. But the fmv used to determine insolvency now is $69,004. Can you help me out on how to figure the attribute reduction.

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2 Responses to "Re Form 982 Insolvent cx mortgage debt (paid credit cards) and reduction of attributes.?"

  1. Liberal AssKicker says:
    The purpose of the “reduction of attributes” is to reduce your tax-free benefit.

    Here’s how forgiven debt works:

    1–Any amount of debt that you no longer have to pay automatically becomes taxable income.

    2–If you’re going through bankruptcy, normally, the income from forgiven debt is no longer taxable.

    3–For insolvency, the forgiven debt is treated like bankruptcy but only up to the point of solvency (in your case, $48,932 is tax free). What that means is that you never have to pay taxes on it forever and ever, amen.

    ***************
    Here’s the catch:

    The IRS doesn’t want you to get that money tax free if you have certain “items” hanging around your personal life waiting for a tax benefit. What they try to do is turn that tax free amount into taxable income by reducing “future tax benefits”, but there are only a few things where this applies. If you don’t have any of the following, you’re Scott Free:

    –net operating loss carryover (from business losses)
    –depreciable equipment (from business equipment)
    –general business credit carry over (from business credits disallowed in previous periods)
    –credit from previous years’ AMT
    –carry over of capital losses (investments)
    –carry over of passive losses (passive investments, like rents and royalties)
    –carry over from disallowed foreign tax credits

    Don’t be surprised if most or all of these don’t even apply to you. These are all rare items, except for depreciable equipment and capital losses.

    The way it works is you reduce your losses and carry overs dollar for dollar until your benefits from insolvency are gone. That’s really all it is.

    ***************
    If by chance one of these actually does apply to you, you have to be specific and tell us which one you have because they’re treated and reported differently (some aren’t reported at all).

    If you want, just add a note to this question, post another one, or you could also e-mail me at:

    joseph.mahal@gmail.com

  2. Mathew says:
    If you have done the insolvency calculation correctly you enter the $16,620 on line 2 and check box 1b as well as checking no for line 3. If you would like you can enter 1099-c next to line 21 and a zero on line 21 to show that you have considered the canceled debt. If this was a mortgage debt you likely do not have the asset any longer so you would not need to depreciate it.

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