taxes on stock used as colateral
If I or a company I controlled were to borrow money against stock as colateral and later default would I be liable for capital gains tax if the stock value had appreciated while being held as colateral?
Also if I borrow money from a business(LLC or Corp.) that I do not repay would this become taxable income?
1 Answer from Attorneys
Re: taxes on stock used as colateral
When a person pledges an asset as security for a loan and subsequently defaults on the loan, it is a deemed "sale or exchange" when the asset is surrendered to satisfy all or part of the debt. Depending on the nature of the property surrendered, capital gains could be triggered on the "sale or exchange".
When a debt is deemed uncollectable by the holder of a note, the amount of debt canceled is generally ordinary income to the debtor.
The second part of your question implies a loan to a shareholder/insider. This requires a detailed knowledge of the facts and curcumstances surrounding the loan and the subsequent actions of the parties involved. As such it is not possible to give general answers in a forum like this.
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