26 C.F.R. § 1.593-11 Qualifying real property loan and nonqualifying loan defined.
Title 26 - Internal Revenue
(a) Loan defined. For purposes of this section, the term loan means debt, as the term debt is used in section 166 and the regulations thereunder. The term loan also includes a redeemable ground rent (as defined in section 1055 (c)) which is owned by the taxpayer, and any property acquired by the taxpayer in a transaction described in section 595(a). For determination of the amount of a loan, see paragraph (d) of this section. (b) Qualifying real property loan defined—(1) General rule. For purposes of §§1.593–4 through 1.593–10, the term qualifying real property loan means any loan (other than a loan described in subparagraph (5) of this paragraph) which is secured by an interest in qualifying real property. For purposes of this section, the term real property means any property which, under the law of the jurisdiction in which such property is situated, constitutes real property. The term real property also includes a mobile unit which is permanently fixed to real property. The determination of whether a mobile unit is permanently fixed to real property shall be made on the basis of facts and circumstances in each particular case. For example, a mobile unit is permanently fixed to real property during a taxable year if, except for a brief period during which the unit is transported to a site, such unit was placed upon a foundation at a site with wheels and axles removed, affixed to the ground by means of straps, and connected to water, sewer, gas, and electric facilities. See paragraph (e) of this section for the treatment of a REMIC interest as a qualifying real property loan. (2) Meaning of Secured. A loan will be considered as secured only if the loan is on the security of any instrument (such as a mortgage, deed of trust, or land contract) which makes the interest of the debtor in the property described therein specific security for the payment of the loan, provided that such instrument is of such a nature that, in the event of default, the property could be subjected to the satisfaction of the loan with the same priority as a mortgage or deed of trust in the jurisdiction in which the property is situated. (3) Meaning of interest. The word interest means an interest in real property which, under the law of the jurisdiction in which such property is situated, constitutes either (i) an interest in fee in such property, (or in the case of a mobile unit, an ownership interest), (ii) a leasehold interest in such property extending or renewable automatically for a period of at least 30 years, or at least 10 years beyond the date scheduled for the final payment on the loan secured by such interest, (iii) a leasehold interest in improved residential real property consisting of a structure or structures containing, in the aggregate, no more than four family units extending for a period of at least 2 years beyond the date scheduled for the final payment on the loan secured by such interest, or (iv) a leasehold interest in such property held subject to a redeemable ground rent defined in section 1055(c). (4) Meaning of qualifying real property. The term qualifying real property means any real property which is improved real property, or which from the proceeds of the loan will become improved real property. As used in the preceding sentence, the term improved real property means: (i) Land on which is located any building of a permanent nature (such as a house, mobile unit, apartment house, office building, hospital, shopping center, warehouse, garage, or other similar permanent structure), provided that the value of such building is substantial in relation to the value of such land, (ii) Any building lot or site which, by reason of installations and improvements that have been completed in keeping with applicable governmental requirements and with general practice in the community, is a building lot or site ready for the construction of any building of a permanent nature within the meaning of paragraph (b)(4)(i) of this section. (iii) Real property which, because of its state of improvement, produces sufficient income to maintain such real property and retire the loan in accordance with the terms thereof, or (iv) A mobile unit which is permanently fixed to real property. (5) Loans not included. The term qualifying real property loan does not include: (i) Any loan evidenced by a security as defined in section 165(g)(2)(C), (ii) Any loan (whether or not evidenced by a security as so defined) the primary obligor on which is (a) a government or a political subdivision or instrumentality thereof, (b) a bank (as defined in section 581), or (c) another member of the same affiliated group, (iii) Any loan to the extent such loan is secured by a deposit in or share of the taxpayer (including a share of nonwithdrawable capital stock), determined as of the close of the taxable year, and (iv) Any loan which (within a 60-day period beginning in one taxable year of the taxpayer and ending in the next taxable year of such taxpayer) is made or acquired, and then repaid or disposed of, unless both the transaction by which the loan is made or acquired and the transaction by which the loan is repaid or disposed of are established to the satisfaction of the district director to be for bona fide business purposes As used in subdivision (ii)(c) of this subparagraph, the term affiliated group shall have the meaning assigned to such term by section 1504(a) (relating to the definition of an affiliated group), except that the phrase more than 50 percent shall be substituted for the phrase at least 80 percent each place the latter phrase appears in section 1504(a), and all corporations shall be treated as includible corporations (without regard to any of the exclusions provided in section 1504(b)). (c) Nonqualifying loan defined. For purposes of §§1.593–4 through 1.593–9, the term nonqualifying loan means any loan which is not a qualifying real property loan. (d) Amount of loan determined—(1) General rule. Except as provided in subparagraph (2) of this paragraph, the amount of any qualifying real property loan or nonqualifying loan, for purposes of section 593, is the adjusted basis of such loan as determined under §1.1011–1. However, the adjusted basis, determined under §1.1011–1, of any loan in process does not include the unadvanced portion of such loan. For the basis of a redeemable ground rent reserved or created by the taxpayer before April 11, 1963, see section 1055(b)(3); and for the basis of a loan represented by property acquired by the taxpayer in a transaction described in section 595(a), see section 595(c). (2) Limitation. If the total amount advanced on any loan exceeds the loan value of any interest in qualifying real property which secures such loan, then the portion of such loan which, as of the close of any taxable year, will be considered as a qualifying real property loan shall be determined under the principles of section 7701(a)(19) and the regulations thereunder. (e) Treatment of REMIC interests as qualifying real property loans—(1) In general. For purposes of section 593 and §§1.593–4 through 1.593–10, if, for any calendar quarter, at least 95 percent of a REMIC's assets (as determined in accordance with §1.860F–4(e)(1)(ii) or §1.6049–7(f)(3)) are qualifying real property loans (as defined in paragraph (b) of this section), then, for that calendar quarter, all the regular and residual interests in that REMIC are treated as qualifying real property loans. If less than 95 percent of a REMIC's assets are qualifying real property loans, then a percentage of each regular or residual interest is treated as a qualifying real property loan. The percentage equals the percentage of the REMIC's assets that are qualifying real property loans. See §1.860F–4(e)(1)(ii)(B) and§1.6049–7(f)(3) for information required to be provided to regular and residual interest holders if the 95-percent test is not met. (2) Treatment of REMIC assets for section 593 purposes—(i) Manufactured housing treated as qualifying real property. For purposes of paragraph (e)(1) of this section, the term “qualifying real property” includes manufactured housing treated as a single family residence under section 25(e)(10). (ii) Status of cash flow investments. For purposes of paragraph (e)(1) of this section, cash flow investments (as defined in section 860G(a)(6) and §1.860G–2(g)(1)) are treated as qualifying real property loans. [T.D. 6728, 29 FR 5864, May 5, 1964, as amended by T.D. 549, 43 FR 21458, May 18, 1978; T.D. 8458, 57 FR 61298, Dec. 24, 1992]
Title 26: Internal Revenue
PART 1—INCOME TAXES (CONTINUED)
Mutual Savings Banks, Etc.
§ 1.593-11 Qualifying real property loan and nonqualifying loan defined.
