Did you know that not all lease related income has to be ordinary? One would always expect that a payment from a tenant to a landlord would be treated as ordinary income under the Internal Revenue Code. Until 1997, that would have been the IRS’ expectation as well.
In 1997, Congress added a very short section to the Code – 1234A. In plain English, this section states that a gain (or loss) attributable to the “cancellation, lapse, expiration, or other termination” of a lease for real property will “be treated as a gain or loss from the sale of a capital asset.”
“Over the next four years, around $1.4 trillion in Commercial Real Estate (CRE) loans will reach maturity. In nearly half of those loans, the buyer owes more than the property is worth.” - Rob Hildt, lending group director at community Banking Ventures in Irvine California as quoted in a recent article in the July edition of Urban Land. What does this mean for an already stagnant market with very few deals going on despite many Funds raising capital to come in and swoop up all of the distressed real estate in the down CRE market? According to Evan Morgan, author of the article, “Supply and Demand” in the July addition of Urban land, there are several things that need to happen for the market to come to equilibrium with current economic conditions.