I have a client who was discharged from bankruptcy in 2009. Prior to the bankruptcy they were carrying forward a $50,000 capital loss on their personal returns.
The bankruptcy trustee has completed a 1040 for the bankruptcy estate including a Form 982 with line 6 completed with the amount being the total forgiven debt-$150,000. Line 6 is "applied to reduce any NOL that incurred in the year of discharge or carried over to the tax year of the discharge". My client doesn't have any NOL's. I believe the 982 has been prepared incorrectly (how can they reduce basis in an attribute they don't have??).
So do I reduce the capital losses to zero as that is what should have been done or carry them forward as they haven't been reduced?
Carolyn
The bankruptcy trustee has completed a 1040 for the bankruptcy estate including a Form 982 with line 6 completed with the amount being the total forgiven debt-$150,000. Line 6 is "applied to reduce any NOL that incurred in the year of discharge or carried over to the tax year of the discharge". My client doesn't have any NOL's. I believe the 982 has been prepared incorrectly (how can they reduce basis in an attribute they don't have??).
So do I reduce the capital losses to zero as that is what should have been done or carry them forward as they haven't been reduced?
Carolyn