‘Qualified debt in the real estate business’ While the insolvency exception is passed on to the shareholder in many cases, taxpayers, with the exception of C corporations, have the option of excluding cash on delivery income from the “qualified debt of the real estate business” at company level. This exception only applies to debts that have arisen in connection with a commercial or business property and are secured by this. In the case of partnerships, disregarded entities, and grantor trusts, the income exclusion and election are reported at the partner level. Conversely, the determination of whether it is a qualified real estate business debt is made at the partnership level.

The following criteria must be met for debts to qualify as qualifying real estate business debts: • The property must be held by the partnership in connection with a business operated by the partnership. A rental agreement under a triple net lease cannot be considered a trade or business. • The debt was taken on or accepted in order to purchase, build, convert or significantly improve the property. • The partner must make a timely choice in the income tax return by submitting Form 982.