Credit: Funtap/Adobe Stock The Importance of Character: Tax Court Addresses Cancellation of Nonrecourse Debt
The distinction between COD income and gain on the sale of property was at issue in a recent Tax Court case, Parker v. Commissioner, discussed here.
August 22, 2023 at 10:00 AM
4 minute read
The characterization of debt as recourse (where the borrower is personally liable for repayment of the loan) or nonrecourse (where the lender's sole recourse is to its security) can have important income tax consequences. When nonrecourse debt is forgiven in connection with a sale of property, the amount of the debt is included in the taxpayer's amount realized and is usually taxed as capital gain.
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