The IRS Deductions Blog

Posts Tagged ‘Deductible Interest’

Question: One disadvantage of financing with bonds versus stock would be that?

One disadvantage of financing with bonds versus stock would be that:

1. a. Bonds create a legal liability to repay the principal of the loan and interest
2. b. Interest expense of a bond issue is tax deductible
3. c. Bonds do not increase the number of owners of a business
4. d. None of these

Answer: Okay I am revising this answer. It is definitely A.

It is absolutely not B or C as those are both advantages, not disadvantages. I don’t like this question because it says “versus stock” and because of that, the question is asked like its comparing financing with bonds versus financing with stock, and this “disadvantage” of answer A is outweighed by the disadvantges of financing with stock. I would argue this point with my professor if I saw this on a test. Just the “versus stock” part.

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Question: Should I mortgage my house or pay cash?

I’m just buying a modest townhouse for which I can use 25% of my savings to buy it outright without any financing costs. But I’ve had people making big cases about how the mortgage interests are tax deductible. But I don’t get it. If I pay $10,000 in interest, sure I can pay $3,000 less income tax. But I’d still have to pay $7,000 interest out of pocket. IMO, I’m better off paying cash. No? I’m not doing well on investing the stock mkt BTW.

Answer: Get the mortgage. Your calculations don’t include the following:

The mortgage improves your credit score
The mortgage makes your purchase a “leveraged purchase”
The mortgage deduction will enable you to itimize your deductions

One of the basic principles of investing is ” a dollar today is worth less than a dollar tomorrow” (due to inflation). In other words, pay off your mortgage with “less valuable” dollars.

Mortgage rates are around 5% to 5.5% now. You can do better investing.

As for the investing, the stock market is at record highs. If you aren;t doing well, I suggest you look into mutual funds. Fidelity has a group of mutual funds that are a fund if mutual funds. Call Fidelity and ask about the Freedom Funds.

If this doesn’t work out, you can always pay off your mortgage later.

Make sure the mortgage is Fixed Rate, no pay-off fees, and fully ammortized.

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Solid Results and Higher Dividend for COGECO Stemming From Continuous Growth in Canadian Cable Operations Despite a …

MONTREAL, QUEBEC– – Today, COGECO Inc. announced its financial results for the third quarter and first nine months of fiscal 2011, ended May 31, 2011.

Dolly Lenz on the Mortgage Interest Tax Deduction

Question: Home Equity Loan to repay 401(k) Loan?

I took a loan out of my 401(k) to pay for part of my down payment, and for renovations for a co-op I am purchasing. My thought was to repay the 401(k) with a home equity loan, the thought being that the interest on the HEL is deductible, versus no deductiblility for the 401(k). Are there any restrictions about what a HEL can be used for?

Answer: Technically, only funds used directly for upgrading property are tax deductible. That said, however, most people do deduct the interest paid on their home equity lines of credit from their taxes and only an audit would require you document the upgrades. Talk to your tax accountant/CPA since you would be using the funds to repay a 401K loan.

There are no restrictions on what you use the funds from a HELOC for. The equity in your home is yours to use as you please.

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Tax cuts won’t spur employment but entrepreneurial energy will. Here’s how.

Home Equity Lines of Credit : Are Home Equity Lines of Credit Tax Deductible?

Question: I cannot understand taxes on my IRAs and need help.?

I have eight traditional IRAs. Some were deductible when I invested, but I never added to them when the law was changed to make IRAs only deductible under certain gross incomes. They have sat for years, earning interest. Other traditional IRAs I have were non-deductible so were intitially and subsequently bought with post tax dollars, unlike the early ones. Then there is a Roth that is also all after tax dollars. Finally a 401 that the mutual fund just took money out and sent to me saying, it is the law that they do that even if I deduct from other IRAs.

Those last people said that I should consider ALL the different IRAs as one.

My questions: I must start taking distributions because I finally have reached that age. Must I pay tax on all the IRAs that I paid for with before tax dollars? Principal and interest? What about the ones with after tax dollars? And the Roth?

How do I prove that I already paid taxes on some of my IRAs? They were bought a long time ago.

Answer: I know that this is confusing, but the fact is that you cannot designate one traditional IRA account as deductible and another as nondeductible then take distributions from whichever account you choose in order to control the taxability of the distribution. You must consider ALL deposits into ALL of your traditional IRA’s, determine your basis, and allocate that basis amont ALL of your traditional IRA balances. Since you have a basis in your traditional IRA’s, EVERY withdrawal you make from ANY traditional IRA will be partially taxable.

You should know your basis in your IRA’s because you should have been filing Forms 8606 with your tax returns for every year that you made a nondeductible contribution to a traditional IRA. You will also need to fill out this form every year that you take a distribution from a traditional IRA to calculate how much of the distribution is taxable.

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TPC Group Reports Strong Fiscal 2010 Fourth Quarter Results

TPC Group Inc. today reported that revenues for the fourth quarter of fiscal 2010 increased 104% to $531.8 million compared to $260.9 million in last year’s fourth quarter and rose by 33% from $400.7 million in the immediately preceding fiscal 2010 third quarter. Â The increase compared to the prior year quarter was primarily due to significantly higher average selling prices, and the …

are Loan discount fees deductibLe

Question: Is home equity mortgage interest deductible for home office expenses?

The money was used to pay off credit cards. I am still paying on the home equity loan. If I do a home office deduction, which I qualify for in every way, can I use the home equity loan interest as a deductible expense?

Answer: Be careful with that, its not really worth to pursue it. You can get caught and then have problems with IRS.

The amount you talk about is so small, you shouldn’t bother really.

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