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Bankruptcy discharged debt, NOL carry forward and taxes.

Cle Elum, WA |

If have a large NOL carry forward being applied each year on my 1040. Unfortunately I soon will need to apply for Chapter 7 bankruptcy to discharge my debts. For Federal Tax Return purposes does this discharged debt get taken against my NOL on my future 1040 returns?

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Attorney answers 2

Posted

Discharged debt is not reportable as income even though the general rule makes forgiven debt taxable as income. Find Form 982 at www.irs,gov and read the instructions for that form.

Best wishes for a favorable outcome, and please remember to designate a best answer.

This answer is offered as a public service for general information only and may not be relied upon as legal advice.

Asker

Posted

Thanks Paula. Rather than viewing the discharged debt as income I was more concerned with whether it needs to be wiped away (so to speak) from the NOL amount I'm carrying forward. I guess your answer suggests that it would not be applied toward reducing the NOL? Thanks.

Posted

This is a question for a tax professional. The discharge may not directly affect the NOL. However, it may affect whether it will offset any losses and provide any tax benefit.

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