[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1055-3]

[Page 174-175]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1055-3  Basis of real property held subject to liabilities under 
a redeemable ground rent.

    (a) In general. The provisions of section 1055(a) and paragraph (a) 
of Sec. 1.1055-1 are applicable in determining the basis of real 
property held on or

[[Page 175]]

after April 11, 1963, in any case where the property at the time of 
acquisition was subject to liabilities under a redeemable ground rent. 
(See section 1055(b)(2).) Thus, if on or after April 11, 1963, a 
taxpayer holds real property which was subject to liabilities under a 
redeemable ground rent at the time he acquired it, the basis of such 
property in the hands of such taxpayer, regardless of when the property 
was acquired, will include the redeemable ground rent in the same manner 
as if it were a mortgage in an amount equal to the redemption price of 
such ground rent. Likewise, if on or after April 11, 1963, a taxpayer 
holds real property which was subject to liabilities under a redeemable 
ground rent at the time he acquired it and which has a substituted basis 
in his hands, the basis of the property in the hands of the taxpayer's 
predecessor in interest is to be determined by treating the redeemable 
ground rent in the same manner as a mortgage in an amount equal to the 
redemption price of such ground rent.
    (b) Illustrations. The provisions of this section may be illustrated 
by the following examples:

    Example 1. On April 11, 1963, taxpayer A held residential property 
which he acquired on January 15, 1963, for a purchase price of $10,000 
and which, at the time he acquired it, was subject to a ground rent 
redeemable for a redemption price of $1,600. A's basis for the property 
includes the purchase price ($10,000) plus the redeemable ground rent in 
the same manner as if it were a mortgage for $1,600.
    Example 2. In 1962, taxpayer X, a corporation, acquired real 
property subject to a redeemable ground rent in a transfer to which 
section 351 (relating to transfer of property to corporation controlled 
by transferor) applied and in which the basis of the property to X was 
the transferor's basis. X still held the property on April 11, 1963. The 
transferor's basis in the property is to be determined by treating the 
redeemable ground rent to which it was subject in the transferor's hands 
as if it were a mortgage.

[T.D. 6821, 30 FR 6217, May 4, 1965]