Treatment of discharge of qualified real property business indebtedness
(1) Basis reduction
(1)Basis reduction#
(A) In general The amount excluded from gross income under subparagraph (D) of subsection (a)(1) shall be applied to reduce the basis of the depreciable real property of the taxpayer.
(B) Cross reference For provisions making the reduction described in subparagraph (A), see section 1017.
(1)(A)In general#
The amount excluded from gross income under subparagraph (D) of subsection (a)(1) shall be applied to reduce the basis of the depreciable real property of the taxpayer.
(1)(B)Cross reference#
For provisions making the reduction described in subparagraph (A), see section 1017.
(2)Limitations#
(A) Indebtedness in excess of value The amount excluded under subparagraph (D) of subsection (a)(1) with respect to any qualified real property business indebtedness shall not exceed the excess (if any) of— (i) the outstanding principal amount of such indebtedness (immediately before the discharge), over (ii) the fair market value of the real property described in paragraph (3)(A) (as of such time), reduced by the outstanding principal amount of any other qualified real property business indebtedness secured by such property (as of such time).
(B) Overall limitation The amount excluded under subparagraph (D) of subsection (a)(1) shall not exceed the aggregate adjusted bases of depreciable real property (determined after any reductions under subsections (b) and (g)) held by the taxpayer immediately before the discharge (other than depreciable real property acquired in contemplation of such discharge).
(2)(A)Indebtedness in excess of value#
The amount excluded under subparagraph (D) of subsection (a)(1) with respect to any qualified real property business indebtedness shall not exceed the excess (if any) of—
(i) the outstanding principal amount of such indebtedness (immediately before the discharge), over
(ii) the fair market value of the real property described in paragraph (3)(A) (as of such time), reduced by the outstanding principal amount of any other qualified real property business indebtedness secured by such property (as of such time).
(2)(A)(i)#
(3)Qualified real property business indebtedness#
The term “qualified real property business indebtedness” means indebtedness which—
(A) was incurred or assumed by the taxpayer in connection with real property used in a trade or business and is secured by such real property,
(B) was incurred or assumed before January 1, 1993 , or if incurred or assumed on or after such date, is qualified acquisition indebtedness, and
(C) with respect to which such taxpayer makes an election to have this paragraph apply.
Such term shall not include qualified farm indebtedness. Indebtedness under subparagraph (B) shall include indebtedness resulting from the refinancing of indebtedness under subparagraph (B) (or this sentence), but only to the extent it does not exceed the amount of the indebtedness being refinanced.
(3)(A)#
was incurred or assumed by the taxpayer in connection with real property used in a trade or business and is secured by such real property,
(3)(B)#
was incurred or assumed before January 1, 1993 , or if incurred or assumed on or after such date, is qualified acquisition indebtedness, and
(3)(C)#
(4)Qualified acquisition indebtedness#
For purposes of paragraph (3)(B), the term “qualified acquisition indebtedness” means, with respect to any real property described in paragraph (3)(A), indebtedness incurred or assumed to acquire, construct, reconstruct, or substantially improve such property.
(5)Regulations#
The Secretary shall issue such regulations as are necessary to carry out this subsection, including regulations preventing the abuse of this subsection through cross-collateralization or other means.