[Code of Federal Regulations]
[Title 26, Volume 9]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.860C-2]

[Page 96]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.860C-2  Determination of REMIC taxable income or net loss.

    (a) Treatment of gain or loss. For purposes of determining the 
taxable income or net loss of a REMIC under section 860C(b), any gain or 
loss from the disposition of any asset, including a qualified mortgage 
(as defined in section 860G(a)(3)) or a permitted investment (as defined 
in section 860G(a)(5) and Sec. 1.860G-2(g)), is treated as gain or loss 
from the sale or exchange of property that is not a capital asset.
    (b) Deductions allowable to a REMIC--(1) In general. Except as 
otherwise provided in section 860C(b) and in paragraph (b) (2) through 
(5) of this section, the deductions allowable to a REMIC for purposes of 
determining its taxable income or net loss are those deductions that 
would be allowable to an individual, determined by taking into account 
the same limitations that apply to an individual.
    (2) Deduction allowable under section 163. A REMIC is allowed a 
deduction, determined without regard to section 163(d), for any interest 
expense accrued during the taxable year.
    (3) Deduction allowable under section 166. For purposes of 
determining a REMIC's bad debt deduction under section 166, debt owed to 
the REMIC is not treated as nonbusiness debt under section 166(d).
    (4) Deduction allowable under section 212. A REMIC is not treated as 
carrying on a trade or business for purposes of section 162. Ordinary 
and necessary operating expenses paid or incurred by the REMIC during 
the taxable year are deductible under section 212, without regard to 
section 67. Any expenses that are incurred in connection with the 
formation of the REMIC and that relate to the organization of the REMIC 
and the issuance of regular and residual interests are not treated as 
expenses of the REMIC for which a deduction is allowable under section 
212. See Sec. 1.860F-2(b)(3)(ii) for treatment of those expenses.
    (5) Expenses and interest relating to tax-exempt income. Pursuant to 
section 265(a), a REMIC is not allowed a deduction for expenses and 
interest allocable to tax-exempt income. The portion of a REMIC's 
interest expense that is allocable to tax-exempt interest is determined 
in the manner prescribed in section 265(b)(2), without regard to section 
265(b)(3).

[T.D. 8458, 57 FR 61301, Dec. 24, 1992]