Bus Vehicle disposed via Repossessed

[AZ-Tax]

No cancellation of debt regarding repossessed bus vehicle yet the bookkeeper entered an amt in the P&L as: "Gain on Disposal of Truck" under acct "Other Income/Expenses - Income". With no cancellation of debt, is this considered income?

The S-Corp has no plans to pay off the vehicles loan balance therefore the vehicle will not be returned so do I report the bus vehicle as being disposed with a $0 asset sale price?

I dont consider myself a bookkeeper but woudnt the outstanding vehicle loan fall under: Long term liability?

[Maribeth]

No cancellation of debt regarding repossessed bus vehicle yet the bookkeeper entered an amt in the P&L as: "Gain on Disposal of Truck" under acct "Other Income/Expenses - Income". With no cancellation of debt, is this considered income?

The S-Corp has no plans to pay off the vehicles loan balance therefore the vehicle will not be returned so do I report the bus vehicle as being disposed with a $0 asset sale price?

I dont consider myself a bookkeeper but woudnt the outstanding vehicle loan fall under: Long term liability?

What is the economic substance of the transaction? Did the lender take the auto back? If so, the debt remaining on the books is the selling price and you calculate gain/loss accordingly.

You must look at what happened and make the entries accordingly.

Maribeth

[AZ-Tax]

Lender took vehicle back...

What is the economic substance of the transaction? Did the lender take the auto back? If so, the debt remaining on the books is the selling price and you calculate gain/loss accordingly.

You must look at what happened and make the entries accordingly.

Maribeth

So as I understand this, it works like if the lender issued the S-Corp a 1099-C and the amt in box 2 would be the asset sale price. Though the lender did not issued a 1099-C to the S-Corp in 2009, what if the Lender issues one in 2010? Does that fall under misc income on form 1120s?

[AZ-Tax]

So is the following correct..

when reporting the repoed truck?

The "Gain on the disposal of truck" is the cost of the truck less accumulated depreciation less the loan. The loan remains a liability less any payments that may have been made after repo date.

[Maribeth]

Let's use some numbers for an example. Cost of truck 10,000. Depreciation taken 4000. Loan balance 7000.

The repo of the truck is accounted for as a sale. Selling price 7000 less cost 10,000 plus depreciation 4000 equals gain on sale of 1000.

Entries on the books:
Credit vehicles 10000
Debit depreciation 4000
Debit loan balance 7000
Credit gain on sale 7000

At the end of the above, the truck is off the books, the loan is off the books, and the company has recorded a gain on the disposition.

Maribeth

[AZ-Tax]

Calculations by bookkeeper

How I determined loan balance

Cost of asset 38627
Less prior & current depreciation -23794
Less the loan balance(not supplied) -9584
Gain reported on P&L 5249

Maribeth calculations
Loan Balance 9584
Less cost of asset -38627
Plus prior& current depreciation 23794
-5249
Bookkeepers calculations
Cost of asset 38627
Less prior & current depreciation -23794
Less the loan blance -9584
5249

Bookkeeper said $8444 will remain
on the books as a liability

Did bookkeeper calculate this correctly?

Do I use $9584 as the selling price? If so that will generate a 1231 loss (Ln 9 Part 3 of K-1) of $5249

[Gary2]

Shouldn't the repossession have been reported on a 1099-A, not a 1099-C?

[WhiteOleander]

Shouldn't the repossession have been reported on a 1099-A, not a 1099-C?

If the lein holder repossesses and forgives the debt in the same year, they can issue a 1099C and skip the 1099A

[Gary2]

Let me ask it differently. In this case, the lender didn't issue the 1099-C in 2009. I suppose they could have just messed up, but my first thought is that they haven't written off the remaining debt yet. Even though the borrower has no intention of paying it off, the lender can and should carry the debt on their books until they have better reason to consider it uncollectible.

Given that, wouldn't they be required to issue the 1099-A for the repossession in 2009, even if they expect to issue a 1099-C in a future year? Or is a better assumption simply that the lender is behind on their own paperwork?

[WhiteOleander]

Let me ask it differently. In this case, the lender didn't issue the 1099-C in 2009. I suppose they could have just messed up, but my first thought is that they haven't written off the remaining debt yet. Even though the borrower has no intention of paying it off, the lender can and should carry the debt on their books until they have better reason to consider it uncollectible.

Given that, wouldn't they be required to issue the 1099-A for the repossession in 2009, even if they expect to issue a 1099-C in a future year? Or is a better assumption simply that the lender is behind on their own paperwork?

In this sceanrio, I would expect to receive a 1099A. The fact that the t/p has not received it does not mean it wasn't issued. It might be lost or sent to a different address. Check with the lender.
In most states the lender has several years before deciding to cancel the debt. So, a 1099C could come quite a bit after the repo.
HTH

[Richard]

Advantage

This can actually work out to one's advantage if insolvency is needed. The asset is gone as of the 1099-A date, but the debt still remains until cancelled (the 1099-C date).

[Richard]

Selling price & future CODI

How I determined loan balance

<snip>

Do I use $9584 as the selling price?

If the loan was not forgiven or reduced, the t/p probably has a legitimate complaint. But from a tax perspective, if the t/p fails to get an adjustment on that, then the selling price is probably $0. At a later date there will be CODI of the loan amount.

If the t/p can get a new loan statement showing a reduction for some value in the vehicle, then there is that reduction for the selling price which may still be a loss. That will reduce the future CODI.