Debt & Interest: Deductibility, Special Calculation Concepts & Provisions
This course focuses on tax issues affecting the treatment of debt and interest deductibility. It covers the definition of bona fide debt, the impact of related parties, the avoidance of equity and lease characterization, and deductible versus nondeductible interest factors. Sticky cross issues such as the impact of at-risk rules under §465, passive loss restrictions of §469, and below-market rate loans under §7278 are examined. In addition, the accounting method treatment of interest, points, prepaid interest, and discounted loans are reviewed. Particular attention is given to imputed interest and original issue discount.
Course Information
Course No. M331
Format: Online pdf (78 pages). Printed book available.
Instructional Delivery Method: QAS Self-Study
Prerequisites: General understanding of federal income taxation.
Advance Preparation: None
Level: Overview
CPE Credit: 2 hrs.
Field of Study: Taxes: Technical
Course expiration: You have one year from date of purchase to complete the course.
Course Revision Date: August 2026
Objectives
Course Topics:
* Indebtedness
* Deductible interest & mortgage interest
* Investment interest
* Nondeductible interest
* Personal interest & capitalized interest
* At-risk rules
* Passive activity limitations
* Below-market interest rate loans
* Imputed interest on sales
* Original issue discount (OID)
Learning Objectives:
After reading the materials, participants will be able to:
- Determine “interest” and select how much is tax deductible under §163 by recognizing incentives to use corporate debt instead of equity and the special treatment of failed equity investment under §1244 and identifying bona fide debt from installment sales.
- Identify deductible interest and related special calculation concepts and determine net investment income, including its impact on the deductibility of investment interest.
- Recognize when interest is nondeductible personal interest under §163(h)(1) and determining the disallowance of interest related to the §465 at-risk limitations and application of the §469 passive loss rules
- Identify interest under the cash or accrual method, recognizing the special elections applicable and the treatment of §7872 loans.
