Home      Login

Abstract: 

This article considers the tax treatment of mortgage defeasances and mortgage defeasances that occur as part of a Section 1031 exchange. It provides a general overview of the mortgage securitization and defeasance processes. It then examines how tax law should treat defeasance discounts and defeasance premiums on the sale of property as part of a mortgage defeasance. Drawing from those principles, the article considers how exchangers might structure an exchange of property that occurs as part of a mortgage defeasance to avoid the adverse tax consequences that may otherwise result from such transactions.

Keywords: mortgage defeasance, IRC Section 1031, defeasance premium, defeasance discount

Affiliations:  1: Brooklyn Law School.