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How to Make a Family Home Loan Interest Deductible

It is not uncommon for individuals to loan money to relatives to help them buy a home. In those situations, it is also not uncommon for a loan to be undocumented or documented with an unsecured note, and the unintended result that the homebuyer can’t claim a tax deduction for the interest paid to their helpful relative. The tax code describes qualified residence interest as interest paid or accrued during the tax year on acquisition indebtedness or home equity indebtedness with respect to any qualified residence of the taxpayer. It also provides that the term "acquisition indebtedness" ...

Tax Break for Sales of Inherited Real Estate

Clients are usually pleasantly surprised by the answer—that special rules apply to figuring the tax on the sale of any inherited property. Instead of having to start with the decedent’s original purchase price to determine gain or loss, the law allows taxpayers to use the value at the date of the decedent’s death as a starting point (sometimes an alternate date is chosen). This often means that the selling price and the inherited basis of the property are practically identical, and there is little, if any, gain to report. In fact, the computation ...

1031 Exchange

If you own real property that you could sell for a substantial profit, you may have wondered whether there’s a way to avoid or minimize the taxes that would result from such a sale. The answer is yes, if the property is business or investment related. Normally, the gain from a sale of a capital asset is taxable income, but Section 1031 of the Internal Revenue Code provides a way to postpone the tax on the gain if the property is exchanged for a like-kind property that is also used in business or held for investment. These transactions ...

Beware of Trust Fund Penalties

The term “trust fund recovery penalty” refers to a tax penalty assessed against the directors or officers of a business entity that failed to pay a required tax on behalf of its employees. For example, employers withhold income taxes and FICA payroll taxes from employees’ wages. These funds actually belong to the government and are referred to as “trust funds.” They cannot be used by the employer to pay other business expenses.

Tax law provides that employers are personally responsible for remitting the trust funds to the government. If the employer is ...

Family Home Loan Interest May Not Be Deductible

It is not uncommon for individuals to loan money to relatives to help them buy a home. In these situations, it is also not uncommon for a loan to be undocumented or documented by an unsecured note, with the unintended result that the home buyer can’t claim a tax deduction for the interest paid to their helpful relative.

The tax code describes qualified residence interest as interest paid or accrued during the tax year on acquisition indebtedness or home equity indebtedness with respect to any qualified residence of the taxpayer. It also provides that the ...