[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.108-6]

[Page 476-477]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.108-6  Limitations on the exclusion of income from the discharge 
of qualified real property business indebtedness.

    (a) Indebtedness in excess of value. With respect to any qualified 
real property business indebtedness that is discharged, the amount 
excluded from gross income under section 108(a)(1)(D) (concerning 
discharges of qualified real property business indebtedness) shall not 
exceed the excess, if any, of the outstanding principal amount of that 
indebtedness immediately before the discharge over the net fair market 
value of the qualifying real property, as defined in Sec. 1.1017-
1(c)(1), immediately before the discharge. For purposes of this section, 
net fair market value means the fair market value of the qualifying real 
property (notwithstanding section 7701(g)), reduced by the outstanding 
principal amount of any qualified real property business indebtedness 
(other than the discharged indebtedness) that is secured by such 
property immediately before and after the discharge. Also, for purposes 
of section 108(c)(2)(A) and this section, outstanding principal amount 
means the

[[Page 477]]

principal amount of indebtedness together with all additional amounts 
owed that, immediately before the discharge, are equivalent to 
principal, in that interest on such amounts would accrue and compound in 
the future, except that outstanding principal amount shall not include 
amounts that are subject to section 108(e)(2) and shall be adjusted to 
account for unamortized premium and discount consistent with section 
108(e)(3).
    (b) Overall limitation. The amount excluded from gross income under 
section 108(a)(1)(D) shall not exceed the aggregate adjusted bases of 
all depreciable real property held by the taxpayer immediately before 
the discharge (other than depreciable real property acquired in 
contemplation of the discharge) reduced by the sum of any--
    (1) Depreciation claimed for the taxable year the taxpayer excluded 
discharge of indebtedness from gross income under section 108(a)(1)(D); 
and
    (2) Reductions to the adjusted bases of depreciable real property 
required under section 108(b) or section 108(g) for the same taxable 
year.
    (c) Effective date. This section applies to discharges of qualified 
real property business indebtedness occurring on or after October 22, 
1998.

[T.D. 8787, 63 FR 56563, Oct. 22, 1998]