4B — November 22 - December 12, 2019 — Owners, Developers & Managers — M id A tlantic
Real Estate Journal
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O wners , D evelopers & M anagers By Christopher Suto, CPA, WithumSmith+Brown Real Property Cancellation of Debt
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year of workout. The first step under Section 108(c)(3) is ensuring the indebtedness was incurred or assumed by the taxpayer in connection with real property used in a trade or business and is se- cured by such real property. Next, the taxpayer will need to address the limitations. There is an equity limita- tion where equity cannot be created in the property from having too much cancelled debt. The amount excluded cannot exceed the outstand- ing principal immediately before the discharge over
the net fair market value of the qualifying real property immediately before the dis- charge. Once that limitation is satisfied, the taxpayer may elect to apply any portion of the reduction under Sec- tion 1017 to the basis of the taxpayer’s depreciable prop- erty. The term depreciable property means any property of a character subject to the allowance for depreciation, but only if depreciation or amortization will be taken in the period immediately following such reduction.
n a year where real es- tate values are increas- ing, cancellation of debt
the company receiving an IRS Form 1099-C, which can potentially lead to the debt forgiveness being included in gross income. However, there is an exclusion of income rule under Internal Revenue Code Section 108(c) that al- lows the taxpayer to avoid recognizing this income by reducing the taxpayer’s ba- sis in the depreciable real property. There are several steps that must be followed and limitations that must be ad- dressed in order to properly exclude the income in the
This includes transforming data sets into story-telling narratives that can be read- ily accessed, reviewed and retold from anywhere in the world with one or two mouse clicks on a single remote de- vice. It also means capably disseminating this protected data to authorized individu- als though the use of mobile applications that enhance worker productivity and de- liver personalized customer experiences. Mobility also represents the next stage of evolution for real estate professionals look- ing to stay on the good side of clients, owners and tenants. Immediacy is no longer an option or luxury. People want answers and they want them now. There is no place to hide in a world where everyone is accessible 24/7 via text, email or cellphone. That is the value of mobil- ity: the ability to turn smart devices into mobile data centers that make doing busi- ness in the field as efficient, transparent and transitory as any activity performed in the office. Michael Mullin is presi- dent of Integrated Busi- ness Systems (IBS) in Totowa, NJ. Mobility is changing the way property managers do . . . continued from page 3B The reduction in deprecia- tion is then allocated to the partners over the property’s remaining useful life. There- fore, the longer the remain- ing life exists, the longer a taxpayer can defer the in- come. This election is made by filing Form 982, Reduc- tion of Tax Attributes Due to Discharge of Indebtedness. If the taxpayer misses this election, the IRS has granted Section 9100 relief to make a late election under Section 108(c)(3)(C). There are nuances when working through different entity types so be sure to speak with your trusted tax advisors at Withum to ensure the maximum tax benefits can be achieved. Christopher Suto, CPA is a Real Estate Services GroupTeamMemberwith WithumSmith+Brown.
on real prop- erty is not typically an issue or on the mind of many own- ers. Rea l e s - t a t e , o f course, does
Christopher Suto
have its downturns and in unfortunate circumstanc- es, a company may need to go through a debt workout agreement. This can lead to
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