Contributions to the REMIC

Generally, no gain or loss is recognized by the REMIC or any of the regular or residual interest holders when property is transferred to the REMIC in exchange for an interest in the REMIC. The adjusted basis of the interest received equals the adjusted basis of the property transferred to the REMIC.

The basis to the REMIC of property transferred by a regular or residual interest holder is its fair market value immediately after its transfer.

If the transferor holds a regular interest and if the issue price of the regular interest is more than its adjusted basis, the excess is included in income by the regular interest holder for the applicable tax years as if the excess were market discount on a bond and the holder had made an election under section 1278(b) to include this market discount currently. If the transferor holds a residual interest and if the issue price of the residual interest is more than its adjusted basis, the excess is amortized and included in the residual interest holder’s income ratably over the anticipated weighted average life of the REMIC (as defined in Regulations section 1.860E-1(a)(3)(iv)).

If the transferor holds a regular interest and if the adjusted basis of the regular interest is more than its issue price, the regular interest holder treats the excess as amortizable bond premium subject to the rules of section 171. If the transferor holds a residual interest and if the adjusted basis of the residual interest is more than its issue price, the excess is deductible ratably over the anticipated weighted average life of the REMIC (as defined in Regulations section 1.860E-1(a)(3)(iv)).