Default and foreclosure are unfortunate realities in today’s real estate market. But loss of a property doesn’t have to mean that you will be facing a major tax consequence or loss of control of your overall financial strategy. Triple Net Equities is offering a new program - the Troubled Asset Proactive Trade “TAPT” - that may be of significant benefit to owners facing foreclosure or loan restructuring.
Of course, every owner wants to avoid having a foreclosure or deed in lieu on their record, but many do not realize that a foreclosure or deed in lieu can result in a large tax obligation, if the loan amount exceeds the owner’s basis in the property. This is most likely to happen when the property has been owned for a long period or was acquired through a 1031 exchange. Depending on the owner’s basis, an even worse problem can arise when the debt is written down by the lender in a workout arrangement, since the amount of the write down is taxed at ordinary income rates. Plus most lenders are only willing to consider a loan restructuring if the owner makes a significant equity infusion. Moreover, even if the lender is willing to restructure, there is no assurance in the current downturn that the property may not soon be back in trouble and require further equity contributions, with the prospect of throwing good money after bad to feed an underwater deal. Commercial real estate lags the economy, so even if the recession is ending recovery for property is likely to be sometime off.
Our TAPT program offers owners in these situations a path to avoid gain recognition as well as an ability to retain some control over the disposition process, turning an otherwise disastrous scenario into a positive, long-term opportunity. It may be the best alternative among those that are actually available.
See more information about how the TAPT Program works:
CIRCULAR 230 DISCLOSURE: This communication is not a tax opinion. Pursuant to Internal Revenue Service regulations, to the extent that this contains
tax advice, it is not intended or written to be used by a taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer or for promoting to another party any tax related matter addressed herein.