Course Information

Course No:  9221821

Course Name:  Dealing with Debt and Interest

Field of Study:    Taxes

Course Description:  

This course brings the practitioner up-to-date information on tax issues affecting in-terest 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.

Learning objectives: After completing this section, you should be able to:

  • Determine “interest” and select how much is tax deductible under §163.
  • Identify deductible interest noting special calculation concepts and procedures.
  • Identify nondeductible interest noting provisions that deny or restrict the deduction of interest.
  • 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.
  • 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 debt-financed acquisitions of, and distributions from, partnerships and S corporations.
  • 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 that can impact the qualified home mortgage interest deduction.
  • Recognize the general rule for the tax treatment of points noting exceptions, determine when a taxpayer will receive a Mortgage Interest Statement – Form 1098 and which information is included on this statement to figure interest deductions.
  • Identify when a stock in a cooperative housing corporation owned by a tenant-stockholder is a qualified home allowing for a deduction of interest paid, and specify the limits on the home mortgage deduction to ensure that appropriate deductions are taken.
  • Identify distinctions between dividends and interest noting the taxability of interest on CDs, deferred interest accounts, frozen deposits, and U.S. obligations and specify the treatment of other miscellaneous interest items.
  • Recognize the types of U.S. savings bonds noting their tax advantages and disadvantages, identify the tax treatment of bonds sold between interest dates, and determine when life insurance proceeds are taxable or excludable from income.
  • Identify state and local government debt obligations noting the nature of the activity they fund and their impact on whether the interest received from them is taxable.
  • Recognize the importance of the installment method and, specify the §453 requirements and basic terminology associated with using the installment method.
  • Determine the impact of §483 (imputed interest rules) and §§1271 through 1274 (original issue discount rules) on installment sales, and identify the §1038 repossession rules that apply to repossessions by sellers and repossessions of principal residences.
  • Specify the rules associated with real property sales and casual sales of personality, the provisions associated with the related party rules of §453 and the exceptions that override basic installment planning, identify regulations governing like-kind exchanges noting their impact on delayed exchanges and recognize the development and application the contingent payment rules.
  • Determine the allocation of payments for a single sale of several assets among different classes according to R.R. 76-110, identify the §1060 residual method to report the sale of a business, and identify “dealer dispositions” noting when installment reporting may not be used.
  • Recognize the interest payable on installment dispositions exceeding $5 million and specify the circumstances when dispositions of installment obligations occur.
  • Identify the variables that determine which §1038 rules for repossessions apply, and determine basis and gain or loss resulting from repossession of personal property using installment method and the non-installment method sales.
  • Specify the distinctions between the rules, calculations and effects of repossessions of personal and real property, and identify when a §166 bad debt deduction may be taken if the seller repossesses real property.
  • Recognize the effect that debt cancellation has on net worth and potential income inclusion from cancellation of indebtedness income, and specify exceptions to the general income inclusion rule noting their tax impact.
  • Identify tax attribute reductions noting their application when reducing canceled debt, cite the special basis reduction rules, recognize the depreciable property election in reducing the basis of depreciable property before reducing any other tax attributes, determine what constitutes individual, partnership and S corporation bankruptcy, and specify the variables used in determining whether shares of stock issued to a creditor are nominal or token.
  • Determine gain or loss resulting from foreclosure or repossession noting reporting and filing requirements, specify the timing and character of the gain or loss, and cite the hidden income tax danger of directly or indirectly acquiring one's own debt at a discount.
  • Recognize the mechanics of equity participation debt noting the use of this financing option to clients.
  • Determine the types of equity participation debt.
  • Recognize the general tax treatment of interest received from sources within the United States, and identify the tax treatment of foreign interest.
  • Identify bad debt categories noting their tax treatment and effect on accounting and reporting.
  • Determine the §166 tax treatment of business bad debts.
  • Specifying methods that can be used by businesses to treat uncollectible amounts noting the rules that apply to each.

Course Material: Online Material

Program level: Overview

Prerequisites: General understanding of federal income taxation.

Advance preparation: None

Type of delivery method: QAS Self-study

Recommended CPE credits:   18.0

Final examination expiration date:   The program participant will have one year from the date of purchase to complete the course and final examination.