Discussion:1.163-8t , interest tracing
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Discussion Forum Index --> Basic Tax Questions --> 1.163-8t , interest tracing
Discussion Forum Index --> Tax Questions --> 1.163-8t , interest tracing
| 15 March 2009 | |
| TP purchased a sch c business with a contract for 25k a year for 7 years. Interest applies to the loan. TP is in AMT and also has a rental property. AGI. Income is above 150k.
Taxpayer uses line of credit secured by his home for 125k to purchase rental property at same time as first installment is due on business contract. What i intend to do is elect 25k of 125k used on from loc to be traced to sch c business. Remainder 100k would be traced to Sch E. 100k if left on schedule A will not be of benefit because of amt. On schedule E it will not provide a current benefit either but at least it will be future benefit. what do you think? Do I just write Election 1.163-8t and the allocation? Obviously when paying down the loan I want principal to reduce sch E first. Is this a problem? | |
| 15 March 2009 | |
| If an election is required to treat the loan as not secured by the residence, it will fall under ยง1.163-10T(o)(5) which is irrevocable without IRS consent. | |
Harry Boscoe (talk|edits) said: | 15 March 2009 |
Some people say that the election Solomon's referring to must be made, in order to get the interest *off of* Schedule A. Others say that there's nothing that forces the interest *onto* Schedule A in the first place. This is snarled mess of very old - some would say obsolete - rules and overlapping but incomplete instructions from the IRS. Personally I believe the best answer - and it should be a supportable one - is to trace the interest to where the proceeds went and if that's a good answer, use it. That may be where you are now.
Except for the way you used the phrase "elect to be traced" to the Schedule C business. If it's traced there it's traced there. Do you see some election needed to trace it to where you want it to be traced? Other than the election to treat the indebtedness as *not* secured by the residence, which is more of a problem than an answer... | |
| 16 March 2009 | |
| harry,
quickfinder notes that the actual proceeds of the loan need NOT be used to pay the expenses. That's why i stated "elect to be traced". In the case of the schedule C I am using one loan to pay another. The benefit is the LOC is a lower rate of interest then the original acquisition business debt. put it together with being able to let the debt go longer on an interest only note will save the tp money by having an additional sch C deduction while paying down the rest of the interest on his house first. | |
Harry Boscoe (talk|edits) said: | 16 March 2009 |
| The $25,000 isn't being paid, then, as an installment on the purchase price of the Sch C business? There are a whole slew of "tracing" rules in Reg Sec 1.163-8T that're so complicated nobody can follow them. I'm lost, but that's OK, because I'll be found soon. | |
| 16 March 2009 | |
| not directly with the loan proceeds. the whole 125 was used to buy the rental property. But within 30 days of the payment of the schedule C.
So i would rather allocate 25 of the 125 to the shedule c and leave only 100k on the sch e. | |
| 16 March 2009 | |
| Does the entire loan need to be elected as unsecure? or can you do partial? | |
| 16 March 2009 | |
| I Found this link which was helpful
http://www.pkftexas.com/pkf/NewsBot.asp?MODE=VIEW&ID=8&SnID=2 | |
