Note Receivable - When to pick up accrued interest?

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  • D. Lynn
    Junior Member
    • Aug 2010
    • 2
    #1

    Note Receivable - When to pick up accrued interest?

    I have a client with several notes receivable. All were created in 2009. One is a one year note (which matures in 2010, so I believe the interest would all be picked up in 2010.)

    However, I'm unsure when to pick up the interest for the other two...one is a 20 month note and one is a 3 year note. They are not below market loans.

    Presumably they would need to be taxed as the interest is accrued but I find no authority on this except in the OID rules, which I don't think apply.

    Any thoughts?

    Should have noted that it's 8% interest, payable at the end of each note.

    The client is a cash basis individual tax payer.
    Last edited by D. Lynn; 08-13-2010, 04:28 PM. Reason: Missing information.
    Tags: None
    • thomtax
      Senior Member
      • Nov 2006
      • 1276
      #2
      Originally posted by D. Lynn
      I have a client with several notes receivable. All were created in 2009. One is a one year note (which matures in 2010, so I believe the interest would all be picked up in 2010.)

      However, I'm unsure when to pick up the interest for the other two...one is a 20 month note and one is a 3 year note. They are not below market loans.

      Presumably they would need to be taxed as the interest is accrued but I find no authority on this except in the OID rules, which I don't think apply.

      Any thoughts?

      Should have noted that it's 8% interest, payable at the end of each note.
      Welcome Lynn,

      You do not say, but was the client a cash basis taxpayer or accrual basis?

      LT
      Only in government or politics is a "cut in spending" really an increase. It's just not as much of an increase as they wanted it to be, therefore a "cut".

        Comment

        • D. Lynn
          Junior Member
          • Aug 2010
          • 2
          #3
          sorry, I didn't include that...individual is cash basis. (revised my original post too)

            Comment

            • thomtax
              Senior Member
              • Nov 2006
              • 1276
              #4
              Originally posted by D. Lynn
              sorry, I didn't include that...individual is cash basis. (revised my original post too)
              Don't have a cite for you, but it is my understanding that a cash basis taxpayer would report it when available to him/her. I'm speaking for tax purposes and not bookkeeping, but since the interest will not be paid until the end of the note, I personally would not report it until it is paid.

              LT
              Only in government or politics is a "cut in spending" really an increase. It's just not as much of an increase as they wanted it to be, therefore a "cut".

                Comment

                • JON
                  Senior Member
                  • Jul 2005
                  • 1265
                  #5
                  If the notes

                  are with non stockholders it is income when received. If the notes are with a stockholder and interest is not received it is DEEMED recieved and recorded in each year.

                    Comment

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