What is a Tax Attribute?
A tax attribute is a reduction that the tax credit or tax loss when a lender cancels debt that the taxpayer owes. There are typically seven types of tax attributes: net operating losses, business credit carryovers, minimum tax credits, capital losses, property bases, passive activity loss and credit carryover, and foreign tax credit.requires a to make in a
How Does a Tax Attribute Work?
John Doe qualifies for a $2,000 minimum tax credit. A tax credit is dollar-for-dollar reduction in John Doe’s tax bill.
However, John Doe also declared bankruptcy, which resulted in his company discharging $1,500 of his credit card debt. Although this means that John Doe no longer owes the $1,500, his tax credit is reduced by that amount.
Themust use Form 982 to reduce his or her tax attributes in a specific order.
Why Does a Tax Attribute Matter?
Generally, discharged debts do not count as for borrowers. But in order to ensure that borrowers do not dramatically benefit from debt discharges, the requires that the discharged debts reduce the ’s tax attributes. Tax attributes generally only surface when a person or company is bankrupt.