Which statement regarding tax attributes is correct?

The correct answer encompasses the truth of both the first and second statements regarding tax attributes.

Canceled debt does indeed require a specific order for reducing tax attributes, primarily due to the regulations that govern how taxpayers must adjust their tax situation after receiving relief from debt. This orderly approach ensures that the impacts on tax attributes are correctly calculated and managed.

Additionally, the second statement is also correct in that the debtor has the option to reduce the basis of depreciable property before addressing other tax attributes. This flexibility is crucial as it allows the taxpayer to potentially maintain more beneficial tax positions for other attributes by strategically choosing how to manage the impact of canceled debt.

While the third statement appears to provide a straightforward approach to how tax attributes decrease with canceled debt, it lacks the nuance found in the first two statements about the specific process and options available. Therefore, recognizing that both the first and second statements are true leads to the conclusion that the correct choice is that both these elements are accurate concerning the management of tax attributes upon the cancellation of debt.