You're a business owner that takes out a home equity line of credit. The debt is the owner's, not of the business. How do you account for any money drawn out of the HELOC and put into the business?

Answer 1

You do not directly account for the HELOC in the business from my understanding. You are essentially providing a lending facility to your business, not the bank. The HELOC would need to be in the business's name to be on their books. Given the term for HELOC's, you should probably make it a notes receivable with you as the creditor and your business as the debtor. You can set the terms & rate to whatever you want. There are certain tax advantages & disadvantages to charging a higher or lower interest rate than your HELOC that would depend on your current tax bracket. Anyways these are just my thoughts -- reach out to me/respond if you have any more questions.

Answer 2

Hi, and thanks for your questions.

For starters, it is generally highly recommended that you have a separate accounting system for each entity, therefore one for your personal books and one for the business books.

Based on the information in your question, you would have completed two "real life" transactions, therefore you would record two transaction in your books, one in each entity's books.

Beyond that, you would need each Chart of Accounts (in each file) to contain the proper accounts to be used in the data entry. This involves a little design and implementation, fancy words for setting up the proper list entries.

Only then can the data be entered. Your question appears to be how to enter the actual data.

At this point, we are getting into the design and implementation of your particular file, which is typically done in a fee-based session.

Please feel free to contact me or other tutors who you find to be a good match in order to get into your particular case.

Good luck!

Answer 3

A home equity line of credit (“HELOC”) allows you to borrow money as you need it, tapping into your home’s equity at a relatively lower rate and using the funds for virtually any reason. Using a HELOC for business purposes, however, can come with some risks. The advantage of a HELOC is that it is a secured loan — using your home as collateral — so the lender considers the loan less of a risk. However, if your business fails or you experience financial hardship and find yourself unable to repay the loan, the lender can foreclose on your home, so that is a disadvantage you want to consider.

Interest paid on most HELOC is not deductible unless the interest is paid on loan proceeds used to buy, build or substantially improve a main home or second home. For example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not. Keep in mind that financing your business with a HELOC is not a business expense. #gmacericpa