Congress Passes Tax Relief through 2010 for Solvent Debtors Holding Real Estate
Taxation Partner Mark Stone published an article titled "Congress Passes Tax Relief through 2010 for Solvent Debtors Holding Real Estate" in the American Bar Association Section of Real Property, Trust & Estate Law eReport.
The article addresses a provision of the American Recovery and Reinvestment Act of 2009 that adds tax relief for the solvent real estate debtor (and, in certain circumstances, the insolvent debtor) for cancellation of indebtedness income realized in 2009 and 2010. The provision, section 108(i) of the Internal Revenue Code of 1986, is designed to assist companies that can otherwise deleverage by reacquiring their debt at a discount. Mr. Stone outlines how the statute allows taxpayers to defer COD income for five years and subsequently include such income ratably over a five-year period, effectively permitting a 10-year interest-free deferral of tax obligations. He further outlines how COD income is generally taxed to the real estate investor in a workout scenario and how the new 2009 Act provision fits with existing tax law relief available to such investors. In his conclusion, Mr. Stone highlights the short window of opportunity available to use the tool and predicts further guidance from the IRS and Treasury Department regarding its application in the near future.