Jump to content
ATX Community

Investment Interest


Edsel

Recommended Posts

There are some people who are fond of investing in bonds.  Bonds are paying very pitiful returns, typically less than 1.5% but are very stable investments.  Municipal bonds are tax-free but pay even less.

Savvy investors increase their returns by leveraging their assets with loans.  Definitely increases the return, but at some point the two combined factors of interest expense plus risk establish a point of diminishing return on how much of the investment can be leveraged with loans.

With the new tax law, the "investment interest" available on Form 4952 can have virtually no tax benefit, with the new standard deductions.  Fewer than 8% of my clientele now file a Schedule A.  This is perhaps an investment topic rather than a tax topic, but as preparers we encounter questions from clients who want to negotiate the best treatment in these days of higher standard deductions. 

Are there suggestions as to how to maximize the tax benefit of investment interest?

 

Link to comment
Share on other sites

Looks like no one who has read this has any solutions, either.  Another casualty of the new tax law and higher standard deduction.

Important:  Is there an election option to capitalize the investment interest instead of wasting the 4852 process?  This would result in adding the interest every year to the basis of the bond investment.  Almost certainly would result in a loss when the bond is sold, against LTCG income.  Other additions to basis would be amortization of bond discount, but this feature should not result in a loss upon disposition.

Link to comment
Share on other sites

Under "Individuals", please read the section "Election to maximize the investment interest deduction."  Keep in mind that the election is irrevocable without consent of IRS.  Also keep in mind that unused investment interest expense carries forward.

https://www.journalofaccountancy.com/issues/2013/feb/20126851.html

 

Edited by jklcpa
fixed link
  • Like 2
  • Thanks 1
Link to comment
Share on other sites

Good Article.  Describes the upsides and downsides of deducting interest and nullifying LTCG/QualDiv treatment.

Does not discuss whether there is an election to capitalize the interest instead of deducting on 4952.  As there is no known support, I can only assume this election is not available.

Thanks for responding.

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Restore formatting

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...