Wraps - The 'Hunt' for an Escape of Mortgage over Basis
According to the Internal Revenue Code, when a seller issues a mortgage to the buyer of his real estate, if that mortgage is in excess of basis or the sellers cost, that excess is considered a payment in the year of sale and is taxed that way. Two important cases support this ruling. The case of Frank Hutchinson brought the idea of a wrap around mortgage to the Tax Court. The court studied the wrap and its effect on mortgage in excess of basis for installment purposes. In the case of D.A. Hunt, the Tax Court ruled that in the installment sales rule, a payment is not made when there is a mortgage in excess of basis and a wrap around mortgage is used. Recently, the Installment Sales Revision Act of 1980 was passed which changes some of the provisions in this section of the Internal Revenue Code.
Publication Name: Taxes: The Tax Magazine
Recent Tax Rulings on AMIs
Alternative mortgage instruments (AMIs) were designed to combat the mismatch problem of lenders. The attractivess of these mortgages are affected by the tax treatment of interest. The payments and interest deductions on graduated payment mortgages (GPM) are less than fixed mortgages. The tax treatment of price-level adjusted mortgages will likely be similar to GPM's. Shared appreciation mortgage interest deductions are only available to cash-basis taxpayers when paid. Zero-interest mortgages have a ten per cent deductible interest portion.
Publication Name: Journal of Accountancy
Recent cases and rulings clarify activity determinations and other issues
An IRS letter ruling on real estate professionals' passive activity limitations, along with the Tax Court's Chapin, Wiseman, and Machado decisions, were the major developments in passive activity taxation during 1995-1996. Activity determinations, material participation, self-charged interest, and income characterizations were among the issues addressed in Tax Court cases or by IRS Tax Advisement Memoranda.
Publication Name: Journal of Taxation of Investments
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