Reducing Form 982 tax attributes (1120)

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Tax attributes must be reduced in a particular order. The order is dependent upon why the canceled debt is being excluded from income. Use Screen 982 or 982S (as applicable), to report the reduced attributes on Form 982. See the Form 982 instructions regarding the ordering rules that must be followed.

The following information provides details regarding the reduction of tax attributes for C Corporations.

If the canceled debt is excluded due to bankruptcy or insolvency, the excluded debt must be used to reduce the tax attributes in the following order unless electing to reduce the basis of depreciable property first. Tax attributes are reduced after determining the income tax liability for the tax year. See IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments, for additional information.

  1. Net operating loss - To report NOL reduction on Form 982, line 6, enter the excluded amount(s) in the Net operating loss and carryover and Net operating loss and carryover - AMT fields in Screen 982, which is located in the Other folder. The reduction is also reported on the Adjusted Net Operating Loss Carryover Worksheet and the Adjusted Net Operating Loss Carryover Worksheet - AMT.
  2. General business credit carryover - To report the general business credit carryover reduction on Form 982, line 7, enter the total amount excluded from income in the General business credit carryover field in Screen 982, which is located in the Other folder. UltraTax CS reports 33 1/3 percent of the amount entered on Form 982. The reduction is also reported on the Adjusted General business Credit Carryover Worksheet.
  3. Minimum tax credit - To report the minimum tax credit reduction on Form 982, line 8, enter the total amount excluded from income in the Minimum tax credit field in Screen 982, which is located in the Other folder. UltraTax CS reports 33 1/3 percent of the amount entered on Screen 982. The reduction is also reported at the bottom of Form 8827.
  4. Capital loss - To report the excluded income as applied to reduce net capital loss on Form 982, line 9, use the applicable capital loss carryover fields in Screen 982, which is located in the Other folder. The reduction is also reported on the Adjusted Capital Loss Carryover Worksheet.
  5. Basis - IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments, describes that basis reduction must occur in the following order.

    Note: Basis needs to be adjusted as of the first day of the following tax year in which the tax attribute was reduced. This requires a manual adjustment to assets entered in the asset module, any beginning inventory proforma'd to Screen A or Screen F. A client note could be created and proforma'd to the following year as a reminder to adjust applicable basis in the following tax year. For more information about client notes, see Attaching a client note.

    1. Real property used in trade or business (except inventory) or held for investment that secured the canceled debt - To report the excluded income on Form 982, line 4 as applied to reduce the basis of depreciable real property, use the Qualified real property business indebtedness applied to reduce basis of depreciable real property field in Screen 982, which is located in the Other folder.
    2. Personal property used in trade or business (except inventory and accounts and notes payable) or held for investment that secured the canceled debt - To report the excluded income on Form 982, line 10a as applied to reduce the basis of nondepreciable and depreciable property, use the Basis of nondepreciable and depreciable property if not reduced for Section 108(b)(5) election field in Screen 982, which is located in the Other folder.
    3. Other property (except inventory, accounts and notes payable, and real property held primarily for sale to customers) used in the taxpayer's trade or business or held for investment - To report the excluded income on Form 982, line 10a as applied to reduce the basis of nondepreciable and depreciable property, use the Basis of nondepreciable and depreciable property if not reduced for Section 108(b)(5) election field in Screen 982, which is located in the Other folder.
    4. Inventory, accounts and notes receivable, and real property held primarily for sale to customers - To report the excluded income on Form 982, line 10a as applied to reduce the basis of nondepreciable and depreciable property, use the Basis of nondepreciable and depreciable property field in Screen 982, which is located in the Other folder.
    5. Personal use property.
  6. Passive activity loss and credit carryovers - To report the reduction of tax attributes as applied to reduce passive activity loss and credit carryovers on Form 982, line 12, enter the total amount excluded from income in the applicable passive activity fields in Screen 982, which is located in the Other folder. UltraTax CS reports 33 1/3 percent of the amount entered in Screen 982.

    Note: Passive activity loss and credit carryovers need to be manually adjusted for the reduction in tax attribute by overriding the Suspended Losses to Next Year column on the applicable Passive Activity Deduction Worksheet. The reduced carryover amount proformas to the following tax year.

  7. Foreign tax credit - To report the reduction of tax attributes as applied to reduce foreign tax credit carryover on Form 982, line 13, enter the total amount excluded from income on the applicable foreign tax credit carryover fields in Screen 982, which is located in the Other folder. UltraTax CS reports 33 1/3 percent of the amount entered on Screen 982. The reduction is also reported on the Adjusted Foreign Tax Credit Carryover Worksheet.

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