Dealing with Debt & Interest

Upon successful completion of this course, participants will be able to:

Chapter 1

• Determine “interest” and select how much is tax deductible under §163, identify what constitutes bona fide debt, specify how transactions with controlled corporations can recharacterize alleged indebtedness into business equity, and differentiate debt from leveraged leases, and annuities.
• Identify deductible interest and applicable business interest limitations and determine net investment income and its relationship to the investment interest deduction.
• Specify nondeductible interest and the provisions that deny, restrict, or require capitalization, and recognize the §465 at-risk limitations and the application of the §469 passive loss rules.
• Recognize the deduction of interest using either the cash method or accrual method and determine the special elections applicable to and treatment of carrying charges under §266, below-market loans, imputed interest, and original issue discount.

Chapter 2

• Determine the allocation of deductible interest based on the use and repayment of the loan proceeds and identify the special rules for the allocation of interest expense in connection with the placement of loan proceeds and distributions.

Chapter 3

• Identify categories of mortgages and characteristics of secured debt that influence the deductibility of interest, “qualified home,” and special situations affecting mortgage interest.
• Specify special situations created by graduated mortgages and ground rent that can impact the home mortgage interest deduction.
• Recognize the general rule for the tax treatment of points or service charges and their exceptions and determine when a taxpayer will receive a Form 1098 and which information is included on this statement.
• Identify the limits on the home mortgage deduction and recognize its application refinancing and grandfathered debt.

Chapter 4

• Identify distinctions between dividends and interest, the taxability of interest on CDs, deferred interest accounts, frozen deposits, and U.S. obligations.
• Recognize the types of U.S. savings bonds and their tax advantages and disadvantages and identify the tax treatment of bonds transferred between interest dates.
• Identify state and local government debt obligations, the nature of the activity they fund, and their impact on whether the interest received from them is taxable.

Chapter 5

• Recognize the§453 installment method and specify its requirements including special rules for residential lots, wrap-around mortgages, pledging, and escrow accounts.
• Determine the impact of §483 (imputed interest rules) on installment sales and identify §1038 repossession rules that apply to repossessions by sellers.
• Specify the related party provisions of §453, identify regulations governing like-kind exchanges and their impact on delayed exchanges, and recognize the application of the maximum selling price rules.
• Determine the allocation of payments for a single sale of several assets and identify “dealer dispositions” and when installment reporting may not be used.
• Recognize the circumstances when dispositions of installment obligations occur.

Chapter 6

• Identify gain or loss resulting from repossession of property under the installment and the non-installment method.
• Determine adjusted basis on repossession and identify limits on taxable gain under §1038.

Chapter 7

• Recognize the potential income inclusion from cancellation of indebtedness income, and specify exceptions to the general income inclusion rule and their tax impact.
• Identify tax attribute reductions on application of inclusion exceptions including the ordering of their reduction.
• Determine gain or loss resulting from foreclosure or repossession, specify the timing and character of foreclosure gain or loss, and cite the hidden income tax danger of directly or indirectly acquiring one’s own debt at a discount.

Chapter 8

• • Recognize the mechanics of equity participation debt and the value of this financing option to clients and identify common elements, characteristics and tax treatment of shared appreciation loans including the locked interest exception.

Chapter 9

• Recognize the tax treatment of foreign interest subject to withholding, identify the impact of tax treaties, specify statutory withholding rates for tax-free covenant bond interest, and recall U.S. obligors that are not subject to withholding.

Chapter 10

• • Identify bad debt categories and their tax treatment and effect on accounting and reporting by determining the concepts of worthlessness and true debt, specify the treatment of bad debts related to political debts, and determine the forms used to report bad debts.
  • Determine the §166 tax treatment of business bad debts by identifying the tax treatment of business credit transactions, loan guarantees, and accounts receivable, recognize the requirements of an accrual method business taxpayer to a bad debt deduction for a political debt, and identify the tax consequences of the insolvency of a partner when a business partnership terminates.