For our tax gurus out there:
We all know that IRC 108 excludes canceled debt from gross income
and that certain tax attributes get reduced. My question concerns
the reduction of costs basis attribute:
I have read that section and IRS publication 4681 on the issue. It
states that: "If you exclude canceled qualified principal residence
indebtedness from income and you continue to own the home after the
cancellation,
you must reduce the basis of the home (but not below zero) by the
amount of the canceled qualified principal residence indebtedness
excluded from income. Enter the amount of the basis reduction on
line 10b of Form 982."
Since most mortgage debts are not reaffirmed, they are discharged in
most bankruptcy cases. Does that mean that the debt has been
automatically excluded from income per the above and the basis must
be reduced by that amount, or does the taxpayer have an option of
not excluding it from income (i.e. perhaps it's not necessary).
I'm not sure if this is a nuance of Form 982 or a more serious issue
that looms for unsuspecting debtors. Or maybe I'm worrying about
nothing. If the basis does get reduced in these instances, it sounds
like something bankruptcy counsel should be making their clients
aware of the possibility prior to filing a case.
*************************
Mark J. Markus
Law Office of Mark J. Markus
11684 Ventura Blvd. PMB #403
Studio City, CA 91604-2652
(818)509-1173 (818)509-1460 (fax)
web:
http://www.bklaw.com/
Certified Bankruptcy Law Specialist--The State Bar of California
Board of Legal Specialization
This Firm is a Qualified Federal Debt Relief Agency (see what this
means at
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