NFJ <google[at]geekstud.com> wrote:

- quote -

I suspect this is a homework question, but I'll answer
anyway just to test my own knowledge.

Both parties would recognize the gain in 2002, the year of
the actual sale. However, in the case if the Chapter 7
filer, the gain would be reported on a Form 1041 return
filed on behalf of the "bankruptcy estate," not directly by
the individual. This return ~should~ be prepared and filed
by the Chapter 7 Trustee (however, I have heard of numerous
cases where this never happened).

MTW

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OK tax gurus, here's my attempt to stump you ;-) All
kidding aside, I could really use some answers to this
question if anyone would be so kind.

Scenario:
In 2002 someone files for Chapter 7 bankruptcy - spouse was
not a part of that action. As a part of the settlement, a
house purchased as investment property was sold for a profit
of $100k in round numbers. Spouse receives $50k at closing
in 2002, but other $50k is kept by Chapter 7 trustee and not
disbursed until 2003. Disbursement in round numbers is $43k
toward tax debts, $7k to Chapter 7 filer.

Ignoring an adjustments to the basis of the house to lessen
the profit, in what tax years do the different spouses
(filed married-joint) report what amounts of the income?

Thanks!

-NFJ

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