Non-recourse Debt

Non-recourse debt is a form of loans whereby the lender relies on the value of the collateral and no other party in case of default on the loan. This is not a common type of loan in the business world due to the volatility of most assets. In general, non-recourse loans are only used in very low risk capital needs situations such as real estate or the purchase of financial instruments (bonds and annuities).

Real Estate Investment Trusts – REITs

REITs

Real Estate Investment Trusts are corporations, trusts or associations that act as agencies in real estate and associated mortgages. This is a specialized tax segment and it requires recognition by the Internal Revenue Service to operate as a Real Estate Investment Trust (REIT). In general, the REIT pays little to no income taxes and acts very similar to a pass-through entity for tax purposes. All REITs must comply with Code Section 856 which addresses compliance for this privileged tax advantage. Typically, REITs file Form 1120-REIT for tax purposes. 

A secondary advantage for REIT status is the ability to raise capital via syndication.  Section 856(a) and (b) require a minimum of 100 shareholders or owners of interest in the business entity. This allows for a more advantageous management situation by having a more formal elected board of trustees or directors.  In addition, it allows for greater ease of transfer of ownership with the respective investors. 

To fully appreciate the Real Estate Investment Trust, you should become acquainted with the history behind REITs. From there, there are unique advantages associated with REITs and an investment in one. As with all business situations, there are some disadvantages and you should be aware of them. The following sections cover these three topics and I’ll finish off with my own conclusion. 

Crowdfunding in Small Business

Crowdfunding

The process of collecting a large pool of investors, each contributing or investing a small amount of dollars for a highly focused project is referred to as crowdfunding. The crowd is financing the project or goal. This is very similar to how large non-profits address significant events worldwide. A good example is the American Red Cross addressing disaster relief in the aftermath of a major natural tragedy. 

Form 1099-C: Cancellation of Debt

Form 1099-C

If you received a 1099-C, the first question you ask is: ‘Do I have to include this in my taxable income?’ Well, the answer is ‘it depends’. Not what you want to hear but there are a lot of variables involved in answering this question.

Recourse and Nonrecourse Types of Loans

Recourse and Nonrecourse

When a lending institution loans money they mostly fear nonpayment of the debt. Often these loans were implemented due to a third party’s endorsement. To qualify the endorsement the bank may require the third party guarantee the debt. This is known as having ‘Recourse’ in getting the debt paid