Technical topics regarding tax preparation.
11-Jun-2014 4:34pm
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I'm stumped on this one. Client sold property on installment for $700,000. He did not receive any payments for the first few years. In 2013 the promissory note is 'refinanced/renegotiated', interest capitalized of about $80,000, and my client received payments based on the new terms of a lower interest rate. So in 2013 client needs to record interest income and income based on the principal payments. He receives a 1099INT based on new amortization schedule, however, I think his interest income is higher since part of these payments include interest which was capitalized. I'm not 100% sure how to calculate the interest income. Do I use an imputed interest method?
11-Jun-2014 7:09pm
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http://www.vertex42.com/ExcelArticles/n ... ation.htmlIf the intent here is up the "principal" to $780k and pay it down with fixed payments over a fixed period of time, I'm thinking you'd want to track the $80k accrued interest separately from the $700k original principal, so to speak. For starters, see this link, about halfway down under "Simple Interest Amortization."
12-Jun-2014 5:15pm
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Thank you for the link for reference.
13-Jun-2014 1:21pm
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Is the bigger question whether or not the $80,000 is taxable income in 2013, and you just treat all future payments with a normal P&I application, or
Are all payments received taxable interest until the loan balance reaches $700,000 principal owing?
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