The Jews a History Essay Example for Free

The Jews a History Essay Research Problem 1 1. Discuss the different types of interests and the IRS rule related to the deductibility of each type for tax purposes. Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. There are different types of interests, including investment interest, qualified residence interest, student loan interest, and personal interest, which are either deductible or nondeductible. Personal interests are interests on car loans, credit cards, loans for appliances and furniture and interest on loans made by one person to another. Personal interest is nondeductible. If interest is paid on a qualified student loan, taxpayers may be able to deduct the interest as deduction for AGI. Generally, the allowable amount for student loan is lesser of $2,500 or the amount of interest taxpayer actually paid. Investment interest is interest paid on money borrowed to purchase or hold investment property. It is tax deductible on income tax return up to the amount of the net investment income. However, if the interest is incurred to produce tax exempt income, it cannot be deducted. Investment interest is not any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. The qualified residence interest is interest taxpayer pays on a loan secured by one’s main home or a second home. The loan may be a mortgage to buy primary home, a second mortgage, a home equity loan, or line of credit. The main home is where taxpayer lives most of the time. A second home is other residence taxpayer owns and treats as a second home. If the second home is rented, taxpayer must also use it as a home during the year for more than the greater of 14 days or 10% of the number of days it’s rented, for the interest to qualify as qualified residence interest. Home equity loan interest usually is nondeductible unless the loan is used to buy, construct, or substantially improve the taxpayer’s qualified residence. 2. Discuss the section of the IRS code that the IRS will use to support its position of disallowing the deduction. According to Publication 17 (2010), Your Federal Income Tax for Individuals, part 5-23, personal interest is expense that is considered not deductible. Personal interests are interests on car loans, credit cards, loans for appliances and furniture and interest on loans made by one person to another. Because Donald did not have $600,000 to pay Marla, he agreed to have the whole amount payable over 10 years at 8% interest. IRS considers the amount as a personal loan that Marla lends to Donald. The interest of the loan falls into categories including in personal interests. Therefore, IRS disallows the interest deduction that Donald claimed as investment interest. 3. Discuss the support that Donald will need to defend his position that the interest is investment related and should be deductible for tax purposes. As agreement between Donald and Marla after divorce, they divided their property equally based on the fair market value of property. As a result, Donald had corporate stock, a commercial building, and a personal residence. In return, Marla got other property. However, Donald’s property had the higher value compare to Marla’s. Because they did not sell their property, Donald believed that all the property owned by him or Marla is considered either investment property or qualified residence. In addition, the amount of $600,000 is the fair market value of their property. Hence, its interest is considered one of his investment interests. As a result, Donald deducted the interest on this Federal income tax return. 4. As a tax expert, recommend a strategy for Donald to use in resolving this difference with the IRS Donald needs to prove that the amount of $600,000 is not the loan that Marla lends him. He can show the property settlement between him and Marla. $600,000 is the difference amount between his and her property value. He, in fact, owned the property which had the higher value. Donald used the interest he made from that higher value’s property to pay Marla every year. Therefore, Donald can file and deduct the interest as his investment interest.