An accounting question...about notes I created.... - Posted by Tom Nagle

Posted by DanM(OR) on March 14, 2000 at 13:42:07:

about cheating. I took him up on that and let my accountant worry about stuff like that.

Sorry, I am no help here. I am a do-it-yourselfer to. I just had to decide one day, should I be out looking for deals or researching tax laws? I decided against getting into Tax Law, needless to say.

Find a good CPA and he will be worth his weight in gold. Mine even knows the ins and outs of all the asset protection laws to.

Good luck to you!

Dan Matejsek

P.S. I still owe you a beer

An accounting question…about notes I created… - Posted by Tom Nagle

Posted by Tom Nagle on March 14, 2000 at 12:12:36:

Hi folks-

I have a meeting next week with a new accountant, and this week I have been trying to put together my taxes for my corp. I have been alright with everything dealing with properties that I have flipped, rehabs, etc. but I have a question involving the accounting of two notes I created last year. I want to do my taxes on my own (this year) and compare them to what my accountant comes up with…

Anyway, I sold two properties last year in which I created firsts and seconds on both of them. I sold one of the firsts to a local investor, and I am holding the second on the one note and a first and a second on the other note.

My question deals with the property where I hold the first and the second notes. Do I owe the whole capital gains tax on them for last year, or is the interest that I received on those notes all that is taxable? I am having the darndest time trying to figure this out, even though I am using Quickbooks with TurboTax Business. Any help would be greatly appreciated.


Tom Nagle

You’ve created an installment sale - Posted by Michael Morrongiello

Posted by Michael Morrongiello on March 14, 2000 at 23:13:18:

Where you sold your property and financed the buyer you created what is known as an “installment sale” and unless you are consider a “dealer” in real estate this profit would be taxed each month as you receive the interest and principal payments paid to you. You would pay NO capital gains tax on this sale.

Now ofcourse those notes (perferably the 1st lien) can later on be sold and converted into a lump sum amount of cash. IF this is done, then the cash received would be treated as ordinary income to you in the year you sold the note and collected the cash.

The Installment sale method of accouting can become tricky and its best to have a professional earn their keep.

Best of luck

Michael Morrongiello