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Definition: Tax Attribute
Tax attribute is when there is reduction of tax when the debt owned by a taxpayer in cancelled by the lender. The reduction is made in tax credit or tax loss. Under the normal taxation conditions, discharge would also be considered under the category of gross income.
Now when a situation arises where a tax payer declares a situation of bankruptcy, tax attribute comes into play.
Tax attributes are usually of various types – net operating expenses, General business credits, minimum tax credits, capital loss carryovers, basis of property, passive activity loss and credit carryovers, foreign tax credit carryovers. Tax attributes when reduced, should follow the order mentioned.
The IRS Form 982 (Reduction of Tax Attributes due to discharge of indebtedness) must be used by the taxpayer, to reduce these tax attributes, taking the full possible reduction for each type before moving on to the next one. Dollar-for-dollar basis is typically considered in the reduction and the discharged debt.