Discussion:Basis in payment in kind
From TaxAlmanac
Discussion Forum Index --> Advanced Tax Questions --> Basis in payment in kind
Discussion Forum Index --> Tax Questions --> Basis in payment in kind
| 1 March 2008 | |
| Have a farm client who loaned money and the principal and interest was paid back in commodities w/ fmv that both parties agreed upon. (i.e. feed, livestock, machinery) I am reporting the interest portion as income. Would my client have a basis in any of the above. I can separate the interest commodity payment and the principal. | |
RoyDaleOne (talk|edits) said: | 1 March 2008 |
| Basis? He has income and basis. | |
| 1 March 2008 | |
| Wouldn't the basis in the commodities be equal to principal portion of the loan?
It is just a quick thought. I am assuming this is an arms-length transaction. Did the FMV of feed, livestock and machinery roughly equal the principal plus interest? If the FMV was a lot less than the principal of the note it might be argued that your client's basis in the feed, livestock and machinery would only be equal to the FMV of those items and the difference betweeen the FMV received and the Note Principal was a "loss". The "loss" would be characterized as "business" or "nonbusiness" depending on the circumstances. I am not implying the the "loss" is a tax deduction, on it face. just some thoughts | |
| 1 March 2008 | |
| Thanks. That was what I thought but this has been such a mess that I was beginning to second guess myself. | |
