All real estate may not be subject to new COD rules.A provision in the Revenue Reconciliation Act of 1993 gives taxpayers other than C corporations the ability to exclude from taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. cancellation of debt (COD) income if certain tests are met. One of the requirements is that the debt must be on property used in a business. But is property subject to a net lease considered used in a business or investment property? Letter Ruling 9426006 implies that net lease property is not business property and thus would not qualify for the exclusion. The debt must be incurred or assumed in connection with real property used in a business. In this respect, the rental of even a single property may constitute a business. Citing Rev. Rul. 73-522, however, the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. stated that the rental of real property under a net lease does not render the owner engaged in a business. The issue in Rev. Rul. 73-522 was whether a nonresident non·res·i·dent adj. 1. Not living in a particular place: nonresident students who commute to classes. 2. alien was engaged in a business within the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. when he owned a building subject to a net lease. The Service ruled that, to be in a business, the taxpayer's activities must be continuous, regular and considerable. It appears, therefore, that when the taxpayer's property is subject to a net lease, the Service will argue that the taxpayer has to recognize income on the debt cancellation. Arguably, it would appear that taxpayers with multiple net leased properties or rendering significant services would be in a stronger position to argue for exclusion. From Tom Bottiglieri, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , N.Y. |
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