Reg. § 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 , any gain or loss from the disposition of any asset, including a qualified mortgage (as defined in section ) or a permitted investment (as defined in section and ), 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 and in through 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
(i) A REMIC is allowed a deduction, determined without regard to section , for any interest expense accrued during the taxable year.
(ii) For taxable years beginning after December 31, 2017, a REMIC is allowed a deduction, determined without regard to section , 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 , debt owed to the REMIC is not treated as nonbusiness debt under section .
(4) Deduction allowable under section 212 A REMIC is not treated as carrying on a trade or business for purposes of section . Ordinary and necessary operating expenses paid or incurred by the REMIC during the taxable year are deductible under section , without regard to section . 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 . See for treatment of those expenses.
(5) Expenses and interest relating to tax-exempt income Pursuant to section , 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 , without regard to section .
[T.D. 8458, 57 FR 61301, Dec. 24, 1992, as amended by T.D. 9905, 85 FR 56842, Sept. 14, 2020]