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    cindyt's Avatar
    cindyt Posts: 3, Reputation: 1
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    #1

    Jan 8, 2010, 05:35 PM
    How do I write-off a note payable that's been forgiven
    How do I get rid of a note payable that's been forgiven. No interest involved.
    cindyt's Avatar
    cindyt Posts: 3, Reputation: 1
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    #2

    Jan 8, 2010, 05:36 PM

    How do I get rid of a note payable that's been forgiven?
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #3

    Jan 10, 2010, 08:15 AM
    Generally, Debit the note liability and Credit an income account, titled along the lines of "Debt Forgiveness Income" or something similar.

    BTW, debt forgiveness (aka "cancellation of debt income") is taxable income to the debtor in the U.S. for a taxpaying entity or person, except in certain circumstances--check with your tax advisor for the details.

    There are also certain scenarios in which you'd Credit (i.e. reduce) depreciable assets rather than Crediting "Debt Forgiveness Income", as I've described above. These scenarios usually involve bankruptcy or insolvency situations, or certain types of real property debt, and a couple of other specialized fact sets. Again, check in with your tax advisor for further guidance, if you think this might be applicable.
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