This Daily Tax Tip Spotify Podcast and/or WordPress Blog Post discusses the ruling by the Tax Court relating to Basis Reduction Rules When Investment Property Debt Is Discharged.
The Tax Court held that a taxpayer who sold investment properties in the same year he received a discharge of indebtedness for the properties from the mortgage lender, and who properly excluded the discharge from income under the exclusion for qualified real property business indebtedness in Code Sec. 108(a)(1)(D), was required to reduce the bases in the properties in the year of the discharge, rather than the year following the discharge under Code Sec. 1017(a).
The court found that under Code Sec. 1017(b)(3)(F)(iii), the basis reduction occurs in the year the debt is discharged if the taxpayer sells, in the same year as the discharge, depreciable real property that had been used to prove the taxpayer had aggregated bases that exceeded the discharge amount.
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