Tax Concerns When Modifying or Purchasing Distressed Real Estate Debt: Borrower and Lender Concerns
Related Party Purchases. Significant Modifications, Market Discount and Loan-to-Own Transactions
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
- work Practice Area
Real Property - Finance
- event Date
Tuesday, September 21, 2021
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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This CLE course will analyze key tax issues that should be considered in real estate loan modifications and debt purchase transactions. The panel will discuss the cancellation of indebtedness (COD) income concerns with related party purchases and significant modifications, market discount rules, and phantom tax liability associated with loan-to-own transactions.
Mr. Buchman advises clients on the tax aspects of a broad range of domestic and international transactions. In particular, he focuses his practice on advising private investment funds on a broad range of matters related to fund formation and operation, as well as on domestic and cross-border mergers and acquisitions, financings and joint ventures. Mr. Buchman also advises clients on the Opportunity Zone (OZ) provisions in the Tax Cuts and Jobs Act.
Mr. Mandarino's practice focuses on corporate, tax and finance law. He is involved with a wide variety of businesses and transactions, including experience with compliance, planning and M&A activities for partnerships, individuals and corporations. Mr. Mandarino’s practice also includes representation in tax controversy work. He writes and speaks extensively on a wide range of business, tax and finance topics.
The purchase and/or modification of distressed real estate loans can have unintended tax consequences for borrowers and lenders. Counsel should have a thorough understanding of the federal tax rules and regulations that may apply in various workout and investment scenarios.
A borrower may be required to recognize COD income where it pays off its real estate debt at a discount, or where it (or a related party) purchases its real estate debt at a discount. A borrower might also recognize income when there has been a "significant modification" of a debt instrument. IRS regulations outline what constitutes a significant modification and how such income should be calculated.
A third-party investor who purchases a loan at a discount may be subject to market discount rules. Under a formula determined under the tax regulations, the discount would accrue over the remaining term of the loan, and the investor may be hit with ordinary income when the loan is repaid.
Listen as our authoritative panel discusses these and other tax issues borrowers and lenders should consider when purchasing real estate debt entering into loan modifications.
- Loan modifications and the tax code
- Events triggering COD income
- Defining "significant modification"
- Tax liability in connection with constructive exchange of debt
- Issues to consider in purchasing distressed debt
- Related party purchases
- Market discount rules
- Purchase and subsequent foreclosure or deed in lieu: phantom tax liability
- Planning tips
The panel will review these and other important questions:
- When does a loan payoff, foreclosure, or a deed in lieu of foreclosure trigger COD or other income for the borrower?
- What kinds of loan amendments might be deemed significant modifications resulting in a constructive exchange of old debt for new?
- What does the IRC say about the tax liability for a lender who purchases a loan at a discount?
