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Itemized deduction 3

Interest Paid

QuestionAnswer
For income tax purposes we divide interest into several catagories. What are they Business interest, investment interest,personal ionterest, qualified home mortgage interest,and passive activity interest.
Why is it important to distinguish qualified home mortgage interest from personal interest Qualified home mortgage interest is deductible but personal interest is not
On how many personal homes may a taxpayer deduct home mortgage interest Two
There are two categories of home mortgage interest. What are they Acquisition debt and home equity debt
What is acquisition debt Debt secured by the home,incurred to buy,build,or improve the home
What is home equity debt Debt secured by the home and used for a purpose other than to buy,build,or improve the home
Generally what is the limit on acquisition debt for which interest paid may be deducted in full $1million($500,00 MFS)
What is the comparable limit for home equity debt $100,000($50,000 MFS) or the difference between the FMV of the home and the total remaining acquisition debt whichever is less
What are points A one-time interest charge paid up front for the use of money.Points are also called loan origination fees,maximum loan charges and loan discounts
When are points deductible Generally they are deductible over the life of the loan.However points paid for the purchase or improvement of a home may be deducted in the year paid if certain conditions are met.
If paid by the buyer are points deductible Yes if they're for the purchase of improvement of the taxpayer's principal residence and if the charging of points is a common practice in their area
Suppose the points are paid by the seller.What happens then The points are deductible by the buyer and the buyer must reduce the basis of the home by the same amount.
Under what circumstances may points be deducted ratably over the life of the loan(as opposed to using the OID rules) If the loan is secured by a home lasts not more 30 years and a) is no more than $250,000 or b) not more than four points where paid for loans of 15 years or less(not more than six points were paid for loans or more than 15 years)
What is investment interest Interest on loans used to purchase investmnet property
To what extent is investment interest deductible Investment interest is deductible to the extent of net investment income. Any amount disqualified under this rule may be carried over to future years
Is interest paid to purchase nontaxable investments such as municipal bonds deductible No
What is personal interest Interest on credit cards,car loans, and other loans used for personal purposes.Home mortgage interest in excess of the limits also considered personal interest.
Is personal interest deductible Generally no except for qualified student loan interest
Created by: dawn2000
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