This informative course focuses on tax issues affecting the treatment of interest and debt. It covers the definition of bona fide debt, the impact of related parties, the avoidance of equity and lease characterization, and deductible versus nondeductible interest factors. Sticky cross issues such as the impact of at-risk rules under §465, passive loss restrictions of §469, and below-market rate loans under §7278 are examined. You'll also learn about the accounting method treatment of interest, points, prepaid interest, and discounted loans. Particular attention is given to imputed interest and original issue discount.
Upon successful completion of this course, participants will be able to:
- Determine what constitutes 'interest', noting its key components, and identify whether the various types of interest are tax deductible or nondeductible.
- Recognize how to deduct interest that is paid or accrued during the tax year, applying different methods of accounting, specify the applicable federal rate, recognize the effects of unstated interest on transactions, and cite the imputed interest rules in the context of debt instruments.
- Identify the interest allocation rules and the allocation period for a loan, recognize the difference between an allocation of loan proceeds that are deposited in an account and the allocation of loan proceeds received in cash, and cite loan repayments in the order they are deemed repaid.
- Determine when certain distributions, commonly referred to as 'dividends', are actually interest and the tax treatment of interest that is earned on such items as income on frozen deposits and U.S. Savings Bonds.
- Recognize an installment sale transaction, determine what constitutes the installment method, specify the parts of each payment on an installment sale, and cite the related party sales rules of §453.
- Identify exceptions to the general income inclusion rule and their effect on a taxpayer, and determine the different effects of nonrecourse indebtedness from the effects of recourse indebtedness on foreclosure.
- Specify bad debt categories, noting the impact of nonbusiness bad debt recovery, identify when a business deducts its bad debts from gross income, and recognize which accounting method to apply to business bad debts.
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