Beware! the IRS layeth in wait - Posted by Dr. Craig Whisler CA NV
Posted by Dr. Craig Whisler CA NV on August 15, 2003 at 15:57:40:
Ever heard of the IMPUTED INTEREST RULE.
I don’t even know if it still exists but I suspect it does. When does the IRS ever eliminate any chance to help us dispose of our money?
Lemmee see. I’m not sure that I’ve got this exactly right but I think it goes something like this: You sell your mobile with zero interest. The buyer gets to deduct the interest he doesn’t pay you from his tax return and you have to pay income taxes on the interest you don’t receive. The interest rate that doesn’t exist is usually the legal rate or about 10%
Right? What could be simpler?
Check with your tax advisor before giving o interest rate loans.
My interest in zero interest rate loans is just that: zero: unless…
This is, however , a great little tax tidbit to know in case you ever GET a zero interest loan. You can deduct it from your tax liability as an expense, at the legal rate. IMHO this is an often overlooked but clever litttle way to make a bundle after you’ve just made a bundle.
Irony on a stick? I’m told that the IRS doesn’t generally try to enforce this rule because it is a no-win situation for them. Think about it for a minute. If they collect the taxes on the sellers return, they just have to return the money to the buyer on his return.
Just remember that if you are the buyer on a zero interest loan to USE this on YOUR tax return. Its great to deduct something you didn’t pay in the first place.
Maybe the IRS has a heart afterall.