The IRS Deductions Blog

Posts Tagged ‘interest’

Question: Why is the inflation rate not tax deductible?

Its a financial loss. If you have 100,000 dollars in the bank and your bank pays out 1% interest you lose money. The banks interest rate is below the inflation rate. So after one year that 100,000 turns into 101,000 right? Well say that was from the yaer 2006. Well in order to buy something that once cost 100,000 dollars in 2006 will now cost 104,000 in 2007. So its a loss of 3,000 dollars. Why is’nt this loss tax deductible?

Answer: Partially because the extra income from Tax Deductions only adds to further inflation- its more disposable income floating into the open economy.

The official answer, however, is that inflation is built into the market as a function of microeconomics. For a bank to profit from your savings use, it must payout the minimal acceptable interest to consumers and charge the most in its own interest for loans it extends- this is the differential. The bank will of course tell u that the “account holding fees” are responsible for the sub-inflation interest.

But this is again what consumers are willing to deal with. If inflation jumped to like 5 or 6% annually, u can bet everyone would be pulling their funds out and investing in safe, but inflation-matching funds like muni bonds or T-bills.

Items on Amazon Right Now for Not Tax Deductible:

It’s time to prepare for tax day

It’s Jan. 1, the start of a new year, and many people will be busy making New Year’s resolutions in preparation for 2010. As we start preparing for the first few months of the new year, it’s a good time to start preparing for tax time.

Working to Help the Poor in Rural Bangladesh

Question: Can I carry over interest paid on mortgages for tax deduction?

Can I carry over from 2005 to 2006 interest paid on mortgages for tax deduction? Also, are there any other deductions that can be carried over besides charitable contributions?

Thanks.

Answer: No, in fact you cannot. If the issue is that you did not claim all of your mortgage interest in 2005, then you need to file an amended 2005 tax return which includes the mortgage interest you forgot to deduct. This will get you a 2005 refund based on this additional amount. You then file your 2006 return with 2006 mortgage interest only from 2006.

Items on Amazon Right Now for Tax Deduction Mortgage Interest:

Why Johnny can’t be deducted

As a foster mom, I clothed, fed and cared for a child in need. But it’s the birth mother who gets the tax break

Question: Is mortgage interest deductible if the interest is added to the principal instead of paid?

I have a loan that allows me to make a payment that is less than the monthly interest owed. I have never taken this option, but if I did would the interest that is charged but added to the principal instead of actually paid still be deductible on my taxes?

Answer: Good, first, NEVER pay less than the the monthly interest owed, you’ll end up in a negative amoritization of your loan, and owe more on your house than it is worth.

However, to answer your question, your interest that is charged is never added to the principal, because the amount of your principal loan will always stay the same, what changes is interest. Interest and principal are not used interchangably, they are different. If you paid only the interest payments on your loan, the principal would NEVER decrease.

That being said, the interest compounds, which is still deductible on your taxes, but if you are not paying it to begin with, how could you deduct it in the first place?

I hate to answer a question, with a question, but I hope you see my point.

-Em

Items on Amazon Right Now for Tax Deductible Interest Mortgage:

Securing a 1098 form when your mortgage lender shuts down

Q: Taylor, Bean & Whitaker serviced my mortgage until it was shut down last year. Will I get the end-of-year 1098 tax form from it?

1. TDMP Intro

Question: Are credit reports, credit scores and credit monitoring services a tax deductible expense?

I am interested to know if the IRS will allow us to deduct our expeneses in these areas. If so, then I believe that more people would be interested in checking their credit reports and scores for accuracy or even monitor them. Of course annualcreditreport.com is free, but monitoring services and credit scores cost money, which may stop many people from checking their credit information more than once a year for each credit bureau. Thanks for your help.

Answer: The IRS does not allow a deduction for personal expenses like this.

Items on Amazon Right Now for Interest Expense Deductible:

RHB Research lowers VS Industry fair value, reduced to market perform

KUALA LUMPUR: RHB Research Institute has lowered its indicative fair value for VS Industry to RM1.27 from RM1.36 based on unchanged target CY10 price-to-earnings ratio (PER) of 6.0 times and downgraded its recommendation to market perform from outperform.

Question: Can owning 1 or 2 rental property qualify you as a real estate professional.?

I am planning to buy 2 rental properties, approximately $250,000 total. My wife and I both work full-time. Does owning 2 rental properties qualify either one of us as a real estate professional so that we could get losses on these properties as Tax Deductions against our personal income.? If not, what can we do about these rental losses (mainly due to depreciation on the property). Thanks in advance.

Answer: You report your rental income and your rental expenses (interest, taxes, repairs, utilities, depreciated property & improvements).

If your expenses are more than your income, you have a loss and it is deducted from your taxable income.

You do not have to be a real estate professional to do this, just own the properties.

http://www.irs.gov/taxtopics/tc414.html

http://www.irs.gov/businesses/small/industries/article/0,,id=98895,00.html

http://taxes.about.com/od/taxhelp/a/Schedule_E.htm

http://taxes.about.com/od/income/qt/Schedule_E.htm

Items on Amazon Right Now for Tax Deduction On Rental Property:

How new tax code and Budget could hit you

The forthcoming Budget is expected to bring about some of the changes for a smoother transition to the new tax code. Read on. . .

Investing in Rental Properties – Part 1