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Dealing with Debt and Interest

Instructional MethodAdvanced PreparationProgram PrerequisitesField Of Study Interactive Self Study NONE Basic Understanding of Taxes Taxes Experience LevelCourse IDCPE CreditsAuthor Basic to Intermediate DS-303 24 Danny Santucci Dealing With Debt & Interest Course Description: This ...Read more
  • Description
Instructional Method Advanced Preparation Program Prerequisites Field Of Study
Interactive Self Study NONE Basic Understanding of Taxes Taxes
Experience Level Course ID CPE Credits Author
Basic to Intermediate DS-303 24 Danny Santucci

Dealing With Debt & Interest

Course Description:
This course brings the practitioner up-to-date information on tax issues affecting interest and debt. It covers the definition of bona fide debt, the avoidance of equity and lease treatment, imputed interest rates and debt modification. The various types of interest and their required allocation are explored and reviewed. For the economically troubled client, special attention is devoted to debt cancellation, repossession, discounts, and foreclosure. The program also discusses installment sales, equity participation debt, taxable interest, and bad debts.

Who Should Attend: CPAs

Topics Covered:
CHAPTER 1 Deductible Interest & Debt
CHAPTER 2 Allocation of Deductible Interest
CHAPTER 3 Home Mortgage Interest
CHAPTER 4 Taxable Interest
CHAPTER 5 Installment Sales
CHAPTER 6 Repossession
CHAPTER 7 Debt Cancellation & Foreclosure
CHAPTER 8 Equity Participation Debt
CHAPTER 9 Foreign Interest Withholding
CHAPTER 10 Bad Debts

Learning Objectives:

1. Determine “interest” and select how much is tax deductible under §163 by:

a. Identifying what constitutes bona fide debt considering economic substance and purpose and specifying how transactions with family members and controlled corporations can recharacterize alleged indebtedness into gift or business equity noting the factors used in this recharacterization; and

b. Recalling the incentives to use corporate debt instead of equity, recognizing the special treatment of failed equity investment under §1244, and determining the differences among debt from installment sales, long-term and leveraged leases, and annuities.

2. Identify deductible interest noting special calculation concepts and procedures by:

a. Recognizing the allocation of interest based on the debt’s purpose noting the application of any carryover rules and determining net investment income noting its relationship investment interest deduction; and

b. Identifying the special tax treatment given to student loans, margin accounts, and market discount bonds noting what happens to any disallowed interest expense and specifying the timing considerations in interest reporting including interest paid in advance.

3. Identify nondeductible interest noting provisions that deny or restrict the deduction of interest by:

a. Recognizing when interest is nondeductible personal interest under §163(h)(1) and identifying the disallowance of interest related to tax-exempt income under §265, the life insurance interest restrictions of §264; the §465 at-risk limitations and the application of the §469 passive loss rules; and

b. Specifying the treatment of commitment fees and service charges based on R.R. 67-2897 and case law.

4. Recognize the deduction of interest using either the cash method or accrual method, determine the special elections applicable to and treatment of carrying charges under §266, below-market loans, imputed interest and original issue discount.


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