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176. Does an Installment Sale Defer the Tax on Recapture of Accelerated Depreciation? No. Can the Tax on Recapture of Accelerated Depreciation Nevertheless Be Deferred When an Installment Sale Occurs? Yes.
162. Transfer a Family Business to the Next Generation During the Parent's Lifetime, Retain an Asset for Income, Give the Transferee a Stepped-up Basis, Defer the Gain on Sale, Support the Parent with Deductible Rent, and Finance the Transaction, Too
August 28, 2010
With the banks holding about $1.9 trillion in commercial real estate debt and the loss of about 50% of the value of that debt portfolio since 2007 (according to Financial Times), many banks very much want to reduce their exposure to commercial real estate. Many other banks must reduce that exposure, because of consent orders or other agreements they have entered into with their regulators.
Further, many banks are being required to reduce their commercial loan-to-deposit ratio, which means either reducing their commercial loans or raising deposits, or both.
At the same time, many of those same banks either need to increase their capital or at least need to avoid reducing the capital they have.
Some of those same banks are being required to increase their profitability, while they are reducing the loans from which their profits had come.
These banks went into lending on commercial real estate lending in the first place, because it was profitable. Now, while they need to reduce their commercial-loan portfolios they also need to try to avoid writing down those loans, because of the adverse effect those write-downs would have on their income, capital and profitability.
Is there a way to accomplish these seemingly inconsistent objectives?
If there weren’t, would I ask that question, right out here in the open?
The key to seeing how to accomplish all of those objectives at once, while enabling the borrower to return to financial health, is to introduce new components into the situation: that is, to re-define the context. The problem can’t be solved by doing what has always been done.
A full discussion of the answer is beyond the scope of this blog, but I can say now that the answer begins with introducing into the situation someone who is willing to purchase the indebted commercial real estate for the amount that is owed (that is, for more than the property is now worth).
How can a buyer afford to do that? Well, don’t expect me to give you the answer here; you work on it. If you come to a dead end, call me.—Stan Crow
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The Latest Installment addresses situations, questions and issues which are brought to us in the course of the consideration, negotiation or execution of transactions. We don't use the real names of parties to transactions, and we may edit the statement of the question to try to tell the story better. Please feel free to comment, or to take issue, or to raise your own question or situation. If you do the latter, please do not relate any confidential information.
The Latest Installment blog is edited by Stanley D. Crow, who is president of S.Crow Collateral Corp.