Can non-recourse debt be higher than the purchase price of a house?

August 21, 2008

From:  Barret
Date:  Fri, 16 Nov 2007

In your explanation about foreclosures and short sales, I noticed the example showed the tax basis of the property was $300K and the non-recourse debt was $500K.

In California, non-recourse debt for a homeowner is purchase money debt, so the tax basis of the property would be the purchase price, and no gain would result.



Date:  27 Nov 2007

Hello Barret,

In most cases, you are right. I made the example consistent with the example for recourse debt for consistency and contrast.

The tax basis of a replacement residence for a sale before May 7, 1997 could have a tax basis below the cost, but most of those purchases have been refinanced.

Commercial properties can also have non-recourse loans in excess of basis.

I'll add this information to the explanation on our web page.

Thanks for pointing this out!

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.

Michael Gray, CPA
2482 Wooding Ct.
San Jose, CA 95128
(408) 918-3162
FAX: (408) 938-0610
Hours: 8am - 5pm PDT Monday - Friday

Find us on Facebook
Follow me on Twitter
Connect on LinkedIn
Connect on Google+
Our Blog
© 2018

Subscribe to Michael Gray, CPA's
Tax & Business Insight

We respect your email privacy