And, since discount points are considered prepaid interest
, you can deduct those from your taxes as well.
The car will be given as prepaid interest
on the certificate of deposit.
The Company shall have the right to prepay the Notes at any time for an amount equal to 120% of the principal amount of such Notes and accrued and unpaid interest on the principal amount of the Notes (it being understood that any and all prepaid interest
shall be forfeited as a penalty).
According to the court, by denying a deduction for prepaid interest
, the code authorizes a deduction for all interest paid for the tax year--even if it is paid in advance.
461(g)(1) requires a cash-method taxpayer to capitalize and amortize prepaid interest
One area that seems to confuse a lot of people is the tax treatment of points, or prepaid interest
, says Michael Van Den Akker, a tax partner in Price Waterhouse's San Francisco office.
In general, in determining the year (or years) in which to deduct prepaid interest
, IRC Section 461(g) forces cash basis taxpayers to follow the accrual basis method of tax accounting.
In a LIFE transaction, Tradewind Settlements pledges life settlement contracts as collateral for a new loan with prepaid interest
while concurrently purchasing non-performing loans or assets from the bank.
In Clardy,(22) the convicted aider assisted taxpayers in filing false income tax returns that claimed prepaid interest
deductions to which they were not entitled.
Internal Revenue Code section 461(g)(2) considers points prepaid interest
and says they are deductible as interest if paid directly by taxpayers out of their own funds to a bank or financial institution for the use of money and not for specific services performed in connection with a loan.
Points are paid by a borrower to a lender as a prepaid interest
charge for the loan in the year the loan is made.
On January 26, 2007, Scripps Investments & Loans provided Mission Storage LLC, with $14,000,000 for: the refinance of existing debt, and to provide for 9 months of prepaid interest
and transaction related expenses.