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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 2608
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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How do we record this transaction in Quickbooks: $2,895,850

Customer Question

How do we record this transaction in Quickbooks:
$2,895,850 Is Loan Amount
$ 810,875 Is original purchase price for land
$ 579,307 Is Current Increase in Value for land (appraised at $1,390,182)
Lender is trading loans for ownership of land at current value of $1,390,182
Lender is forgiving $1,505,668 (balance of Loan)
So, how do we register this transaction?
Are their potential tax liabilities to the debter for that increase in value in the trade?
Is there another way to complete the intent of this transaction? Basically the lender has already written off $2,000,000 of the loans over the last two years, so they are willing to cancel the loans for ownership of the property.
Submitted: 2 years ago.
Category: Finance
Expert:  PDtax replied 2 years ago.
Welcome to the site. I'mCustomer and will be helping you today.
How were the original write downs recorded?
I should you just want the tax treatment.
Are any of the parties actual basis?
Customer: replied 2 years ago.
ok, I could not find where to write to you. I don't understand your questions....
Customer: replied 2 years ago.
You are asking about the write offs? The lender essentially called $2,000,000 of the loans bad debt and wrote it off because they made so much money in 2013 and 2014 they needed deductions.
Customer: replied 2 years ago.
It almost seems like you don't really speak english??? Your grammar makes no sense... sorry to ask...
Customer: replied 2 years ago.
??? Hello?
Expert:  PDtax replied 2 years ago.
I'm here. I see there was a typo in my response. I do speak English.
I will post my questions again.
Expert:  PDtax replied 2 years ago.
How were the original write downs recorded?
I assume you just want the tax treatment.
Are any of the parties accrual basis?
and, more...
You are the lender, and have written some of the loan down already. Are you a bank or finance company?
Customer: replied 2 years ago.
I am the borrower. It is my project. The lenders and I split the project. I kept one property and they took the other in lieu of the loans. They are private lenders/colleagues. The notes were just simple promisorry notes. Straight with no interest. The balance I gave you is the balance. I need the answers to my questions exactly. How do we book both the increase in value of the property (as noted). How do we balance the debit/credit for the difference between the total owed and the value of the property... essentially the amount they are discounting the loans since they were able to use $2 million in write offs.
Customer: replied 2 years ago.
So, question 1. How do we enter the entries into the books and 2. Are there tax consequences to either the borrow or the lender.
Expert:  PDtax replied 2 years ago.
You have debt forgiveness income, and a significant tax issue. The lenders can recognize an exchange of their remaining debt as write down and receipt of the asset at its fair market value at transfer, with gain or loss to record.
I can help you write the entry, but there are more facts you are not providing that would impact the entries and the ultimate tax cost to you. There might also be steps to consider to minimize the tax implications.
It sounds like you have gotten loan writedowns of $2 million plus $1.5 million more debt relief. Have you recognized any of the tax gain in prior years?
How you hold the land, the entity you hold it in, your personal tax situation could all impact the tax cost or ability to escape tax on the debt forgiveness income.
I can assist, but there remains substantial fact gathering, more historical review, and an evaluation of your personal tax situation to see if you might be eligible for relief from the tax burden.
Since this goes far beyond the accounting entry originally requested, I will post an Offer of Additional Service for the substantial effort your issues will take. Accept, and I can assist in the morning.
My work will introduce the material, and guide you when you speak to a US tax professional yourself (a step I must recommend) after my work is complete. Structuring the transaction(s) will be critical to your managing the tax cost.