reply to Answer 1:but then,when selling the Medallion,what is considered profit and how its taxed?if initial purchase price was 100000(with a loan),was refinanced ,so new loan balance is 300.000 and its sold for 500000.is the profit considered to be 500000(selling price)-100000 original purchase price=400000taxable??
OR its 500000-300000(current loan balance after refinancing)=200000 considered profit and taxable??
A: Taxable Gain = Sales Price - (Acquisition Cost + Improvements).
A Medallion is a license to drive a cab in Chicagoland. There are no improvements, so Gain is merely the Sales Price - Acquisition Cost.
However, there is potential issue where indebtedness exceeds the Sales Price. Where a loan is not satisfied, the lender is entitled to charge off the difference, and send the borrower a Form 1099-C. That unpaid loan balance is called "cancellation of indebtedness," and it is income to the taxpayer. So, if at the time of the sale of the Medallion, the borrower does not pay off any unpaid balance on the loans obtained from the Medallion refinancing, then the borrower will have to pay taxes on the unpaid balance charged off by the lenders.
Reply to answer 2:
but Asset definition is not Current Value of an asset Minus Liabilities?
so 500000-300000= 200000 assets?
A: The corporation does not have to "mark-to-market" the value of the Medallion as an asset. The asset value can remain on the books at its acquisition cost, and the loan balance can be increased as a liability. Corporate cash increases to take up the difference, but that cash is not income -- it's merely loan proceeds.
And is the Interest paid on Loan Tax Deductible,just like on a home mortgage?
A: Loan interest paid by a corporation is fully deductible.
The medallion has a taxi car that produces income lease paid by drivers.if income for the year is ,for example $20000,and Officer Salary is 15000 for the year on a 1099 Misc,is the company profit 20000-15000=5000?
A: If your example were to represent all of the income and expenses of the corporation, then, yes, the profit is $5,000.
This is a C Corporation.
A: I observe a potentially huge problem here: You cannot pay a corporate officer using IRS Form 1099-Misc. Corporate officers are employees of the corporation as a matter of law; officers must be paid W-2 wages/salary. If you want to discuss this issue, please open a new Q&A session, because this issue is out of scope of your original question.
Hope this helps.