One quarter of the loan is treated as tax exempt for interest expense rules
What the document says“In the case of any qualified real estate loan, section 265 shall be applied--”
The section applies section 265 of the Internal Revenue Code of 1986 to a qualified real estate loan by treating it as an obligation whose interest is wholly exempt, by reading 25 percent of the interest on indebtedness for interest on indebtedness, by treating 25 percent of the loan's adjusted basis as the basis of a tax-exempt obligation, and by reading 25 percent of the amount of the indebtedness for the amount of the indebtedness. The amendments apply to taxable years ending after enactment.
What the document actually says“In the case of any qualified real estate loan, section 265 shall be applied--”
One rule in the tax code is read differently for these loans. The four changes that follow say how.
That rule limits deductions tied to tax free income. Here only a quarter of the loan is treated that way. That matches the share left out of income.
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