Sole Proprietor - Closed Business

[peggysioux]

If taxpayer refi'd personal residence in 2005 to pay off charge cards created from business expenses from a schedule C and at end of 2005 closed business, could any of the mortgage interest be carried over to a schedule C as expense. Taxpayer has exceeded the allowed equity debt of $100,000 for mortgage interest.

[Bees Knees]

yes

TTB page 4-11 upper right column has a heading "Election to Treat Home Mortgage Interest as Business Interest." This allows you to deduct the interest on Schedule C instead of A, assuming the interest tracing rules are met.

The Schedule C business continues until all debts of the business are paid off, even if it is no longer generating income.

[Zee]

TTB page 4-11 upper right column has a heading "Election to Treat Home Mortgage Interest as Business Interest." This allows you to deduct the interest on Schedule C instead of A, assuming the interest tracing rules are met.

The Schedule C business continues until all debts of the business are paid off, even if it is no longer generating income.

I'm wondering when this election needs to be made, and what about mixed-use of loan proceeds? The post indicates the financing was completed in 2005, and the business closed in 2006. Last, if the business no longer exists as a Schedule C how can the deduction continue for the life of a refinancing loan which could be very long-term without conflicting with hobby loss rules and profit intent, etc.? I would agree that this would be deductible as a Schedule C item as long as the election was made according to the timing requirements (whatevery they are). I'm not sure if it's correct thata a Schedule C business continues to exist until all the debts are paid, but you may be correct. However, if this is the only remaining debt, the taxpayer should probably request permission to revoke the election and treat the interest as home mortgage interest.

[Bees Knees]

Hobby loss rules apply to hobbies. If this business is not a hobby, then you can show losses for a thousand years and the IRS can’t do anything about it.

Business debt is business debt. If it is a legitimate business debt, and the assets that were purchased by the debt were never converted back to personal use, then the interest paid on the debt is deductible on Schedule C as business interest expense, provided all the proper elections were made and the interest can be traced to the business.

[Zee]

Hobby loss rules apply to hobbies. If this business is not a hobby, then you can show losses for a thousand years and the IRS can’t do anything about it.

Business debt is business debt. If it is a legitimate business debt, and the assets that were purchased by the debt were never converted back to personal use, then the interest paid on the debt is deductible on Schedule C as business interest expense, provided all the proper elections were made and the interest can be traced to the business.

OK. I agree. But, I'd be sure to attach an explanation each year to try to avoid IRS correspondence. Of course, if we assume the deductibility as a Schedule A item for the remaining term, a revocation of the election (if accepted) would simplify the return. But, that could be risky if the full benefit as an itemized deduction is reduced in later years.

[peggysioux]

Sole Proprietor - Close of Business

If taxpayer refi'd home mortgage loan and a portion of additional monies borrowed went toward paying off charge cards from business and balance went on personal expenses, can you elect to treat only a portion of the refi as "not secured" by home or does it have to be all or nothing. Example - taxpayer refi'd and took out an additional $50,000 with $20,000 going on business expenses. Can I elect to treat only $20,000 as unsecured debt??

Thanks for the input!