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Question: Sold my house and want to pay off business line of credit with proceeds. how would i show in accounting?

(Posted by: littleweese on 2007-11-22 12:02:34)

There was a profit on the sale of my house, so I thought I'd use it to pay off my business line of credit. I don't know how to show this properly in my accounting software. Is this 'owner's investment'? Will I have to pay income tax on it if I do this? Can I set it up as a loan to the company and then pay it back with payments? Any help appreciated!

Posted by: planningresult on 2007-11-22, 16:46:29

Show this as an "owner loan ". This is money that business borrows from its owner (you). Book this just like you would any other loan as a liability that the business pays back to you plus interest. (In essence you are replacing the bank). There are no taxes to the business on the cash deposit/ loan into the business. There is no tax deduction to you personally either when you make the deposit/ loan. The business pays off the principle over time (not deductble nor taxable) and the business pays interest (deductible to the company and taxable to you). If you have a taxable gain on the sale of the house, make sure you pay the taxes due in your quarterly deposit. But you likely get to avoid taxes on $250 k of gain if single and $500 k if filing joint return. Make sure this is the case with your CPA. Hope this helps, Dana B. thebarfieldgroup.com

Posted by: yaguru on 2007-11-22, 12:12:28

Well the sale of the house is a personal item by the sound of it...so that's separate from your business. Putting the money into a corporation, that is actually the owners contributed money is typically recorded as a liability on the corporations books..Its a liability account entitled "shareholder's advances " debit Cash credit Shareholders Advances it will not be regarded as revenue to the business the sharholders advances liability account is understood to be the owners personal money put into the business for whatever reason. There is not typically an intertest rate, and the account is not set up as a loan to be paid back. of course when you pay the loan back, the entry will be debit: line of credit payable credit: cash