Often, after much negotiation, debt may be reduced on various projects to realign debtor and equity holders' interests in properties. Property owners restructuring debt should be wary of tax consequences that could occur. Debt cancellation, foreclosures and short sales can often increase tax liability for cancellation of debt income.

On this episode of the Tax Beat Podcast, Brooks Nelson, Partner and Strategic Tax Leader, and Sarah McGregor, Tax Director, discuss the tax cost and potential opportunities of cancellation of debt, particularly in the context of real estate transactions, with Laura Turner, Tax Partner, and Mark Cooter, Real Estate, Construction & Hospitality Industry Practice Leader. 

Listen to learn more about:

• 02:35 - Basics of cancellation of debt and common occurrences 
• 04:00 - Section 108 exceptions to recognizing income
• 05:30 - Attribute reduction as it pertains to cancellation-of-debt (COD) income exclusion
• 08:35 - Differences between short sales and debt modifications 
• 12:07 - Advice for facing challenges during foreclosure conversations with lenders 

Related Guidance

• Making Informed Entity Selection for Real Estate Ownership
• Financing Capital Projects with the Use of New Markets Tax Credits