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Tax Law (Questions About Taxes)/investment interest
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QUESTION: My husband and I borrowed money in the form of a home equity loan to invest in a new partnership we formed in 2004, which is a land development company. We cannot deduct all of the home equity interest on 1040 Schedule A because of the AMT. How do we deduct the interest we have paid on the home equity loan proceeds that we invested in our business? We filed an extension for our Form 1040 return for 2006. Thank you.
ANSWER: Nancy,
Thanks for your question.
I do not know on any way you can deduct the interest. The interest does not meet the IRS definition of investment interest and the AMT limits your interest deduction to the original amount of your mortgage.
Hope this helps.
John Stancil, CPA
---------- FOLLOW-UP ----------
QUESTION: I don't understand the IRS definition of investment interest--I've read their description, but don't understand it. Can you give me a clearer definition?
Investment interest is interest expense paid on loans for property held for investment. Property held for investment includes property that produces interest income, dividend income, annuity income, royalty income, or gain/losses from the sale of that property. It specifically does not include property that produces trade or business income.
Hope this helps.
John Stancil, CPA
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| Rating(1-10) | Knowledgeability = 10 | Clarity of Response = 10 | Politeness = 10 |
| Comment | You clarified the IRS definition of interest expense very well. It seems, logically, that interest on loans whose proceeds were used in pass thru entities would somehow/somewhere be deductible. | ||
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John Stancil, CPA
Expertise
I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I teach tax and accounting at a small church-related college. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a part time tax practice for over 35 years. I am a member of the AICPA, National Association of Tax Professionals, and the Institute of Management Accountants. Visit my website at www.johnstancilcpa.com. Also visit my blog, www.thetaxdocspot.com. Prepare and file your own taxes at www.1040stancilcpa.com
Experience
I hold a doctorate in Accounting, and four professional certifications: CPA, CMA, CGMA, and CFM. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 30 years and have taught accounting and tax at the college level for over 30 years.
Organizations
AICPA, FICPA, IMA, NATP
Publications
The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly.
Education/Credentials
DBA University of Memphis
MBA University of Georgia
BS in Accounting Mars Hill College
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