interest deductions

Interest Deduction

A reduction in one's taxable income that comes from expense from certain interest payments. For example, the interest one pays on one's mortgage is tax deductible so as to encourage home ownership. Likewise, interest paid on a margin account is often deductible. The United States government uses interest deductions, among other statutory tax advantages, to encourage behavior it supports without mandating it.

interest deductions

The IRS allows various interest payments on loans secured by real property to be deducted:Some of these deductions are as follows:

• For business loans, 100 percent of the interest paid each year is a deductible expense.
• For homeowners, the interest on up to $1,000,000 of combined primary and secondary residence home mortgage debt can be deducted.
• Home equity line of credit interest is deductible up to the interest attributable to $100,000 of debt.
• Interest on loans to buy stock in a cooperative building are deductible within the same limits as home interest.
• Co-op apartment owners may deduct their pro rata share of mortgage interest on underlying debt on the building.
For more information see Publication 936,“Home Mortgage Interest Deduction,”at the IRS Web site, www.irs.gov.

References in periodicals archive ?
He expected that inflation rate in Egypt would continue to decline, paving the way for more interest deductions. The Central Bank of Egypt (CBE) cut interest rates last week by 1.5 percent, down to 14.25 percent, the first cut in six months.
163(j) apply after the application of other IRC provisions that subject interest deductions to deferral, capitalization or other limitations.
Comparing the Old and the New," covers personal exemptions, state and local property tax caps, mortgage interest deductions, medical expense deductions, alimony and support, non-child dependent credits and charitable donations.
WASHINGTON -- It's official: Despite widespread fears to the contrary, the IRS has clarified that last year's big tax bill did not kill all interest deductions on home equity lines of credit (HELOCs) and equity loans.
Three new limits may hit real estate professionals especially hard:(l) a new cap of $500,000 ($250,000 for single filers) for losses incurred in any year by noncorporate investors, with the balance rolling over as net operating losses ("NOLs"), (2) a new ceiling on NOLs, limiting their usefulness to 80 percent of the investor's taxable income in any year and (3) caps on interest deductions.
Based on a sample of 575 leveraged loan and high-yield issuers, Fitch estimates that 37% of the issuers will lose a portion of their interest deductions under the EBITDA definition.
Highlights: Lowers individual tax rates for low- and middle-income Americans to 12, 25, and 35 percent and maintains a 39.6 percent rate for high-income Americans; Increases the standard deduction and eliminates special interest deductions; Establishes a new family credit and expands and increases the Child Tax Credit; Preserves the mortgage interest deduction for existing mortgages and maintains the mortgage interest deduction for new homes up to $500,000; Continues to allow for state and local property tax deductions up to $10,000;Limits the maximum tax rate for small and family-owned pass-through businesses to 25 percent; Lowers the corporate tax rate to 20 percent; and Doubles the Death Tax exemption and completely repeals the Death Tax after 7 years.
Mortgage interest deductions now stop after the first $1 million of home loans.
But before embarking on major changes, such as elimination of mortgage- interest deductions, lawmakers need to consider the potential impact on everyone, not just the rich.
Camp's plan would have shrunk marginal rates for most taxpayers to just two brackets, 10 percent and 25 percent; phased down mortgage interest deductions from the current $1 million limit on eligible mortgage amounts to $500,000; eliminated deductions on home equity loans and credit lines altogether; and stretched out the time period needed to qualify for tax-free capital gains exclusions from the present two years out of the preceding five years to five years out of the preceding eight years.
163(j) does not provide a mechanism that ensures that in every situation a taxpayer will enjoy the interest deductions that had previously been denied subject to a carryforward to succeeding tax years.
The resulting tax reform deal eliminated interest deductions on credit card balances, car loans, and most other kinds of loans.