Year End Tax Planning…Seminar Discount Code…December PAPER SOURCE JOURNAL
Now is the time to identify and use your year-end tax deductions. The Fair Market Value of your notes is probably less than your investment; you may have a loss that is tax-deductible. See the article below.
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Your December Paper Source Journal is finally in the mail. The delay was caused by a family emergency.
Year-End Tax Planning: Promissory Notes Are “Stealth Deductions”
by Lawrence Tepper, CCIM
Now is the time to identify and use your year-end tax deductions. If your self-directed IRA account has invested in a promissory note that you want to ‘roll over’ into a Roth IRA account, if you have personally invested in a note, if you have loaned money to someone evidenced by a note, now is the time to have the note appraised. The Fair Market Value is probably less than your investment; you may have suffered a loss that is tax-deductible.
The promissory or mortgage note may be held in a self-directed IRA account, Roth IRA account, estate account, or in a trust account. The note may have been a business note, or a note from a friend or family member. It may be in a safe deposit box. The note may have lost value, or may be worthless; it may qualify for a tax deduction.
Since most taxpayers file tax returns at year-end; now is the time to look for these ‘stealth’ tax deductions. The burden is on you to minimize the taxes and fees you pay.
Price is what you pay, value is what you get
The cost value is what you paid, or what you invested. The Fair Market Value is what the note is worth today if it were sold. If $10,000.00 was invested in a note originally, and today its Fair Market Value is zero ($0.00), there may be a $10,000.00 tax deduction available.
Promissory notes and mortgage notes have two values: cost value and Fair Market Value depending on the specific facts. This tax deduction will benefit you if and when you take steps to report it on your tax return. The burden is on you.
What is the Reason for the Tax Deduction?
The U.S. Treasury Regulations (IRS) requires valuing promissory notes, at their FAIR MARKET VALUE, not at cost.
Sec. 20.2031-4 Valuation of notes
The fair market value of notes, secured or unsecured, is presumed to be the amount of the unpaid principal, plus interest accrued to the date of death (if in an estate), unless the executor establishes the value is lower or that the notes are worthless. If not returned at face value, plus accrued interest, satisfactory evidence must be submitted that the note is worth less than the unpaid amount (because of the interest rate, date of maturity, or other cause), or that the note is uncollectable, either in whole or in part (by reason of the insolvency of the party or parties liable, or for other cause), and that any property pledged or mortgaged as security cannot satisfy the obligation.
Summary
To establish FMV the IRS requires a ‘Qualified Appraisal Report’ prepared by ‘Qualified Appraiser’. (Regulations Section 1.17A-13(c)(3) and Notice 2006-96, 2006-46 I.R.B.902. Sec. 170(f)(11)(E)(ii) ) Work with your tax advisor and with a qualified promissory note appraiser.
Lawrence (Larry) Tepper specializes in appraising promissory notes nationally. He has more than 35 years experience in buying, selling, brokering, and appraising notes nationwide. He holds a law degree with an accounting minor from the University of Denver School of Law, is a licensed Colorado real estate broker and holds the prestigious Certified Commercial Investment Member (CCIM) from the National Association of Realtors. He is a member of many professional organizations including the American Society of Appraisers (affiliate), American Bar Association (associate) and the National Association of Certified Valuation Analysts.
303-779-6996
email: Lawrence.Tepper@comcast.net
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Excellent post. I will be using this service. Keep up the great information!