I have a client...contractor who flips single-family houses. Organized as an LLC taxed as an S Corp.
As of 12/31/2020, the S Corp owned one single-family house that was mortgaged. For the 2020 return, we showed the house on Schedule L, along with the mortgage. The mortgage was reported on line 17 (Mortgages, notes, bonds payable in less than 1 year) as the mortgage is due on demand by the bank, or in December of 2021, whichever happens first.
This client usually turns over properties in 2-4 months, and has a track record of making a profit on each one. There's no doubt in my mind that this property will be sold by May.
Client is getting some of his rentals refi'ed. Lender contacts client who contacts me. The lender is subtracting line 17 from net taxable income (which wipes out all of my clients taxable income and creates a loss). Lender wants a letter from me that the debt is "rollover debt". Threatens that the loan can't be made without the letter from me.
I have reviewed the loan docs, and I see no provision for extension of the terms. It's clear that the debt is due on-demand or in Dec 2021, whichever happens first. Even if I wanted to, I don't think that I can write this letter.
How would you approach this?