Discussion:Debt reduction
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Discussion Forum Index --> Tax Questions --> Debt reduction
DR BRISKET (talk|edits) said: | 5 December 2006 |
| I am working with new client (a sole proprietor) who purchased an ongoing business back in 2003. I am helping him finalize his 2005 return. He acquired a combination of business equipment and goodwill for $30,000 which was financed with a promissory note to the seller. In 2003 and 2004 depreciation and amortization was claimed on his Schedule C. At the beginning of 2005, the balance due on the note was approx $22K. The seller agreed to settle the note for $15,000. My client obtained a new bank loan to pay the $15K. Since this was a business loan, there should be no income realized from the $7,000 note reduction. However, what do I do about the remaining depreciation to be taken since the original acquision price was $30K? Thanks. | |
| 5 December 2006 | |
| The debtor may exlude all or a part of the income arising from discharge of the debt by singing a consent to apply the amount so exluded to reduce the basis of any property held during the taxable year in which the discharge occured. Read code sect. 1017 Reg. 1.1017-1 on this site. | |
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