New limits on the home mortgage interest deduction set by the Revenue Act of 1987

Article Abstract:

The rules affecting the deductibility of home mortgage interest under the Revenue Act of 1987 are discussed. Interest payments on a principal residence and one secondary residence are still deductible, although there is now a $1.1 million cap on the amount of debt that can be used. The types of indebtedness that are deductible as qualified residence interest are acquisition indebtedness and home equity indebtedness. A dwelling must provide basic living accommodations to be considered a qualified residence. To be considered qualified interest, residential interest must be incurred on loans secured by the primary or secondary residence of the taxpayer. The fair market value of a qualified residence is usually measured at the time indebtedness is first secured. For the purpose of computing alternative minimum tax, mortgage interest can be used as a deduction, but its deductibility is more restricted.

Accounting and auditing, Tax deductions, Mortgages, Interest, Interest (Finance)

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Filing separately remains an effective tax-saving strategy after TAMRA

Article Abstract:

Married couples may realize savings by filing separate tax returns when either spouse has medical, casualty and theft, or tier-two miscellaneous deductions, which are deductable only to the extent they exceed a fixed percentage of adjusted gross income. The Technical and Miscellaneous Revenue Act of 1988 (TAMRA) reduced IRA and AMT incentives for married couples to file separately, and tax provisions have achieved neutrality in tax rates, standard deductions, capital losses, and moving expenses between a couple filing separately versus one filing jointly. Disadvantages to married couples filing separately include doubling the 5 percent surtax, disallowing the $25,000 deduction for actively managed real estate for passive loss purposes, reducing the Social Security tax base, and elimination of certain tax credits.

Joint tax returns

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Captive insurance premiums paid to another subsidiary are deductible

Article Abstract:

The recent tax court decision in the Humana Inc case has held that a group of related companies can form a captive insurance company and deduct the premia paid to a wholly-owned captive insurance subsidiary. Companies wishing to establish a captive insurance subsidiary to deduct premia must establish a pattern of facts similar to that of Humana Inc. A captive created along Humana guidelines has the best likelihood of withstanding an IRS challenge. The primary motivating factor for forming a captive should be a valid business purpose. The captive also should be sufficiently capitalized for claims against it, and the captive should act as a legitimate insurance company.

Methods, Cases, Insurance, Tax accounting, Humana Inc., Captive insurance companies

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