Capital Gain Tax and Ordinary Income Debt Forgiveness As Tools for the Real Estate Workout
A straw in the wind; tax consequences will form the battleground, and be very actively in play on the negotiation table between owners, with relatively low adjusted basis in their commercial real estate projects, and lenders attempting to foreclose or otherwise enforce their lien rights with respect to commercial real property. Foreclosure as a triggering event for the imposition of capital gains taxes and lenders' ability to forgive recourse debt obligations (thereby creating either capital gain or ordinary income tax consequences to the borrower) will both be tools for some lively negotiations going forward in the work out process.
