Tax attributes are

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Tax attribute refers to certain losses,tax credits, and adjusted basis of property that must be reduced as a result of the exclusion of debt cancellation from a taxpayer's gross income. Tax attributes are adjusted when a taxpayer declares bankruptcy.

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Tax Attribute.

DEFINITION of Tax Attribute

Tax attribute refers to certain losses, tax credits, and adjusted basis of property that must be reduced as a result of the exclusion of debt cancellation from a taxpayer's gross income. Tax attributes are adjusted when a taxpayer declares bankruptcy.

BREAKING DOWN Tax Attribute

According to the cancelation of debt (COD) income rules, canceled debt will not be taxable if:

the debt was discharged in bankruptcy
the debt was less than $600
the debtor is insolvent, with debts greater than assets, but only to the extent of the insolvency
the canceled debt was a gift or an inheritance from a friend or relative

Individual and business taxpayers who are forgiven their debts as a result of insolvency or bankruptcy do not have to include the forgiven debt as part of their taxable gross income, however, the discharged debt translates to financial gain. Under ordinary taxation principles, the Internal Revenue Service (IRS) taxes most financial gains earned by individuals and businesses. In this case, Section 108 of the Internal Revenue Code (IRC) exempts gains from forgiven debt from being factored into taxable income, providing a measure of relief for certain taxpayers who find themselves facing serious financial difficulties.

However, the amount excluded from gross income is used to reduce certain tax attributes. Excluding income under Section 108 requires that a taxpayer postpone his or her tax liability by decreasing dollar-for-dollar (or in some cases, 1/3 of each dollar) certain tax attributes that would otherwise be available to offset future income. So, in effect, when a debt is canceled, the taxpayer must give up some of the benefits of tax attributes in return for receiving favorable treatment in relation to the bankruptcy.

ekkarill92 answered 1 month ago

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