# Prop. Treas. Reg. § 1.108-5: Limitations on the exclusion of income from the discharge  of qualified real property business indebtedness.

Proposed regulation, not in force. REG-208172-91, 62 FR 955, published 1997-01-07 <https://www.federalregister.gov/documents/1997/01/07/97-154/basis-reduction-due-to-discharge-of-indebtedness>. Interprets 26 U.S.C. § 108.

Par. 10. Section 1.108-5 is added to read as follows:

(a) Indebtedness in excess of value. 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 other qualified real property business indebtedness secured by that property immediately before and after the discharge.

(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 is effective for discharges of qualified real property business indebtedness occurring on or after the date these regulations are published as final regulations in the Federal Register.