AMT vs HMID

NEW -> Contingent Buyer Assistance Program
<p>Eva - Ah-h-h, the trust fund crowd. I do not have any clients who are members of the trust fund crowd. I have a friend who is, but not in the Paris Hilton league. My guess is that there are very few people who could qualify as trust fund babies and certainly not enough to make a difference in the tax revenue collected in this country. But, it is just a guess.</p>

<p>Something that I have noticed and read is that it is the high income earners who pay the huge majority of taxes in this country, but not the high asset holders. We tax income in this country, not assets. The truly wealthy in this country have large assets, and some of their income comes from municipal bonds which are tax free. I guess some might consider that a loophole, or some might consider that a way to get the wealthy to invest their money in civil projects which benefit society. Anyway, food for thought.</p>

<p>And the idea that car leases are tax advantageous when compared to owning is a myth. And an employee may claim auto expense deductions also if it is necessary for the performance of their employment, just as a business owner. Commuting miles are not deductible for either business owners or employees.</p>
 
<p>>>And an employee may claim auto expense deductions also if it is necessary for the performance of their employment</p>

<p>Really?!? Dang, I had deductions I never took for 10 years. Poo. </p>
 
Oh, and let's not forget the sop to Texas and some other states when the IRC changed to allow you to choose whether to deduct state income or sales taxes.
 
All this tax talk has made me realize how much better it would be if we just had a CONSUMPTION TAX. Everybody taxed equally and fairly on what they consume.
 
<em>"All this tax talk has made me realize how much better it would be if we just had a CONSUMPTION TAX. Everybody taxed equally and fairly on what they consume."</em>





I wholeheartedly agree with that statement. It would please me to no end when I see conspicuous consumption if I knew they were paying the bill for our government.
 
<p>IR -- how would a sophisticated buyer be able to form an entity to purchase and own their home and obtain the interest deduction? I don't think this would be permitted if the HMID was eliminated. If this were the case, you would already see it happening with other personal assets on which interest is paid -- like an automobile that is financed. But I don't think it's possible, not without running afoul of the tax laws.</p>

<p>awgee, how is home mortgage interest subject to AMT? The IRS says both charitable contributions and home mortgage interest are allowable deductions under the AMT. Is that incorrect? Also, you said the mortgage interest deduction is reduced by "high income thresholds" -- this is being reduced by 2/3 next year, and being eliminated completely in 2010, no? So post-2010, high income earners would obtain the full benefit of the mortgage interest deduction up to $1m? Please correct me if I'm wrong, that is just my understanding.</p>

<p>The only problem with consumption tax I see is that they are by nature regressive -- punishing those on the lower end of the income scale because they spend so much more of their income on necessities. But I agree that on the whole consumption taxes would be wonderful.</p>
 
marty mcfly,





You can form an S-Corp, Limited Liability Corporation or Limited Partnership to function as a pass-through tax entity. Unfortunately, in California they charge you $800 per year to have one, but it can function as a conduit for the tax benefits of interest expense, depreciation and maintenance expenses. It is more difficult if the sole purpose of the entity is to own your personal residence mostly because you will need to claim the rent as income.





There are many people who use entities like this to deduct interest on other assets. You can even do it Schedule C. Many small business owners write off just about everything as a business expense when in fact it is mostly personal.
 
<p>IR -- With a personal residence, even if your scheme is not illegal, it simply wouldn't make economic sense. You can only deduct mortgage interest and take the depreciation deduction on a rental property to offset the rental income, i.e., you can't use it to offset your other non-passive income.</p>
 
<p>IR -</p>

<p>What if the person has two homes? It would help to claim one as belonging to the corporation, then the mortgage interests on both can be deducted to offset income and you wouldn't have to worry about the $1M cap.</p>
 
LL: You still wouldn't be able to deduct mortgage interest to offset your non-rental income. The PAL rules were enacted in 1986 to ensure that high income doctors, lawyers, etc. couldn't simply use debt to buy real estate and then use the depreciation and mortgage interest expense to offset their incomes. Before the PAL rules, people were doing just that.
 
<p>Oh well... worth a try </p>

<p>So, how are people who are buying multi-million dollar homes doing it? I mean there's gotta be people who own much more than $1M in mortgage debt...but how are they deducting it? I know several doctors up in Crystal Cove. I'm assuming they somehow twisted it so that their homes are owned by their corporations.</p>
 
<i>"how is home mortgage interest subject to AMT? The IRS says both charitable contributions and home mortgage interest are allowable deductions under the AMT. Is that incorrect?"</i><p>


Mortgage interest deduction is <b>reduced</b> under AMT. It is not disallowed. I don't know what you are reading, so I can not answer to it. I can only tell you what the code is. The charitable donation deduction is not reduced under AMT. I have told you this all before. I don't know why you keep on asking me the same question. All I can do is give you the same correct answer. All schedule A deductions are reduced under high income threshholds, including both mortgage interest and charitable donation.
 
Laing_Lies - You may deduct the interest on loans up to $1.1 mil total for two homes. If a property is owned by a C corp, the interest deducted would only be deductible against income earned by that corp. A C corp is taxed on earnings and any distribution to owners is taxed again, and the paperwork for a C is extensive and expensive to maintain and produce. This is usually a terrible idea for the taxpayer. If the property is owned by an S corp, the point is moot, because an S corp is a pass through. The income and deductions are passed through to the taxpayer and treated appropriately, therefore there is no advantage.<p>


The advantage of "income structuring" is a myth and folks who come up with creative schemes are much more apt to end up getting audited and paying penalties and interest. I specialize in audit representation, and although I have not seen it all, I have seen alot, and there are no in-compliance loopholes.
 
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