Phantom Income Triggered By Debt Transactions
By: Bobbi Jo Lazarus, CPA
Recent changes with commercial lending requirements have driven some real estate investors to develop new approaches to investing in real estate. While these approaches may give way to significant earnings, investors should be aware of events that could also trigger phantom taxable income.
The continued increase of distressed loans on lenders’ balance sheets, matched with the increase in required equity and occupancy rates for traditional financing, some real estate investors have found that it is more beneficial to purchase these distressed loans directly from the bank at a significantly reduced price. While the reduced price can be very appealing, future transactions or modifications can lead to unforeseen taxable income.
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