How can tax professionals help parties involved in buying and selling distressed properties get through the CODI maze?
Tax professionals can help taxpayers deal with distressed properties on the front end. Factors that affect tax results include what type of property is held, whether it is a principal residence, investment property or real estate used in a business; how the properly is held, say, by an individual, corporation or a partnership; what type of loan is involved, whether it’s recourse or nonrecourse; or if the taxpayer has other businesses or has other unrelated tax issues to consider. Their tax advisers can assist in projecting out the tax implications of restructuring debt, when combined with other aspects of the taxpayer’s tax situation, or recommend the ideal timing of certain events to minimize taxes. Also, careful planning is necessary because the character of income may differ between CODI and loss from disposition of property (ordinary income versus capital loss). Are laws regulating disposition of distressed properties and CODI changing? Yes. For example, Congress recently enacted t
