The past three columns1 discussed cancellation of indebtedness Income (COD Income) in the context of restructuring or workout of a troubled property or a mortgage securing the property (referred to here as a “troubled loan”) where the property does not generate sufficient cash to service the troubled loan or maintain the troubled property. This column furthers the analysis, discussing additional exceptions to the realization of COD Income.

Qualified real property business indebtedness exception. The Revenue Reconciliation Act of 19932 added Code Section 108(c), allowing taxpayers, other than C corporations, to elect to exclude income from the discharge of “qualified real property business indebtedness” (QRPBI). QRPBI is indebtedness that is incurred in connection with real property used in a trade or business, is secured by such real property and is either (a) incurred or assumed before Jan. 1, 1993 (or debt incurred on or after that date to refinance such debt); or (b) incurred or assumed on or after that date to acquire, construct or substantially improve the real property by which it is secured (or debt incurred to refinance such debt).

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