<p>CSS Profile question 120 asks for the market value of your assets. I have an asset (a loan that I made) that is of questionable value because the "loanee" is way behind on payments. I'm not sure if I will get my money back. I don't think I could sell the loan to anyone, and clearly there is no market for it. So the asset is illiquid. What to do?</p>
<p>what does “illiquid” mean?</p>
<p>Regardless…I believe you need to list the value of that loan as an asset. The bottom line is the person COULD pay you at any time. You cannot “hide” asset money by saying it’s a loan that might not get repaid. It’s still YOUR money. </p>
<p>Think of it this way…ANYONE could say they are loaning someone a HUGE sum of money. They could say that the person was not paying them back and therefore this loaned money was no longer their asset. BUT then the person could pay the loan back. AND the student filing the FAFSA would have a huge amount of unreported asset money.</p>
<p>I believe loans you have given out are considered an asset…someone will correct me if I’m wrong.</p>
<p>A liquid asset is one that can readily be converted to cash. An asset that isn’t liquid is one that cannot readily be converted to cash. What the OP is dealing with is simply a bad debt.</p>
<p>OP can deduct the bad debt on his/her tax return as a loss, in which case it would not have to be declared as an asset.</p>
<p>If and when the borrower ever repays any part of the debt, that money would have to be declared as income, I believe.</p>
<p>But if I don’t declare the loan as a loss on my taxes, how do i assess the market value of the loan? Theoretically, the market value is what a buyer would be willing to pay. I have no idea what this would be, but if I tried to sell it to someone on CC, for example, I bet I would not get any takers, or perhaps some at 5 - 10 % of face value. That is what I am thinking of valuing it at, but thought I would check here to see if this question had come up before.</p>
<p>I’m not sure you can change the value of the loan amount. Perhaps this is a question to ask your tax advisor.</p>
<p>Also, is this a very large sum of money? You may be doing these financial gymnastics for very little if any gain. I would suggest you run the Net Price Calculator for the school with and without this asset, or with the reduced amount. Financial aid is heavily weighted towards income. If your income is above a certain threshold, you may find you don’t qualify for need based aid regardless of what you do with this loan.</p>
<p>A loss (including a decrease in the value of an asset) should show up as a deduction on the OP’s tax return. Whether or not one is obligated to declare that loss, I don’t know . . .</p>
<p>But if the OP declares, for financial aid purposes, that a $100k loan is only worth $1k, he or she had better be prepared to declare that difference as income if the loan gets paid back while the OP is in school!</p>
<p>There is something about a $100k asset being reduced to $1k that will also need some significant justification.</p>
<p>Here is what it sounds like to me:</p>
<p>Parent: Hey friend…can I “loan” you a large sum of money. Please do NOT make any payments to me until my kid graduates from college. I don’t want my loan to you to come up as an asset.</p>
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<p>Well, yes, except that anyone who had that large a sum sitting around, in cash, probably wouldn’t have declared it anyway . . . so the artifice of the “loan” is probably unnecessary. ;)</p>
<p>And if you have THAT much extra cash to loan out, your income would likely be too high for need based aid anyway!</p>
<p>You have to go through the same exercise when valuing your house. Unless you actually sell it, the value you declare is just a guess.</p>
<p>In the case of a loan (or any illiquid asset), I think all that is required is that you make a good-faith effort to provide a value. If you think there is only a 20% chance you will get your money back, value it at 20%. </p>
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You can’t write it off your taxes until it becomes worthless or you dispose of it, and non-business loans are treated as a short-term capital loss, which for most people will not provide an immediate significant tax saving. A fluctuation in value (either up or down) is not reported on your taxes if you still own the asset.</p>