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Tax Law (Questions About Taxes)/Tax in accrued interest at refinance

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Question
I am holding a 1st and 2nd mortgage that are in default.  I have agreed with the borrower to roll the combined balance including accrued interest and late fees into a modified or new mortgage at a lower interest for a longer term.  The original notes were on investment property but now the borrower has moved into the house so it will be occupied by the borrower at least for the near term.  Will I need to report all of the accrued interest as income in the year of the refinance even though it has not been received?  What is the accounting transaction?  Is there more than one way to structure this?  Thanks, Jim.

Answer
if you don't change the balance(s) due, there is no real tax effect. unless you report on the accrual basis for a business investment (are the loans held by you personally or by a business you control?).  if you are cash based, you don't pick up the accrued interest as income.  (whew!)

you will file new notes and amendments to the notes at town hall?

do you need a full time cpa for all your tax questions?

Patrick

Tax Law (Questions About Taxes)

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19 years cpa. ms tax. NOTE: My discussions are only a general information and do not constitute tax advise without entering into a specific agreement and executing an engagement letter; This free chat is nothing more than general information and should not be construed as tax advice nor does my response or replies imply an agreement to provide client specific advice or other guidance for purposes of avoiding IRS tax or penalties and should not be relied upon without your own validation and confirmation of the how the discussion may fit your facts... Not having all the facts and/or not having a direct client relationship prevents me from providing the most accurate replies as possible and I highly suggest using a local CPA to provide you with written advice and guidance. Taking matters into your own hands is much akin to trying to land an airplane without a license. It is easy to FLY a plane, but LANDING is when critical experience is key. In short, caveat emptor; do your homework and don't just rely on free chat board advice anywhere, anytime.

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