§595. Foreclosure on property securing loans

(a) Nonrecognition of gain or loss as a result of foreclosure

In the case of a creditor which is an organization described in section 593(a), no gain or loss shall be recognized, and no debt shall be considered as becoming worthless or partially worthless, as the result of such organization having bid in at foreclosure, or having otherwise reduced to ownership or possession by agreement or process of law, any property which was security for the payment of any indebtedness.

(b) Character of property

For purposes of sections 166 and 1221, any property acquired in a transaction with respect to which gain or loss to an organization was not recognized by reason of subsection (a) shall be considered as property having the same characteristics as the indebtedness for which such property was security. Any amount realized by such organization with respect to such property shall be treated for purposes of this chapter as a payment on account of such indebtedness, and any loss with respect thereto shall be treated as a bad debt to which the provisions of section 166 (relating to allowance of a deduction for bad debts) apply.

(c) Basis

The basis of any property to which subsection (a) applies shall be the basis of the indebtedness for which such property was security (determined as of the date of the acquisition of such property), properly increased for costs of acquisition.

(d) Regulatory authority

The Secretary shall prescribe such regulations as he may deem necessary to carry out the purposes of this section.

(Added Pub. L. 87–834, §6(b), Oct. 16, 1962, 76 Stat. 982 ; amended Pub. L. 94–455, title XIX, §1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834 .)

Amendments

1976-Subsec. (d). Pub. L. 94–455 struck out "or his delegate" after "Secretary".

Effective Date

Section 6(g)(2) of Pub. L. 87–834, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095 , provided that: "The amendment made by subsection (b) [enacting this section] shall apply to transactions described in section 595(a) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] occurring after December 31, 1962, in taxable years ending after such date."