Investment and mortgage interest still provide tax benefits despite increased restrictions

Article Abstract:

Non-corporate taxpayers will become ineligible for personal interest deductions after 1990, but taxpayers can receive tax benefits by converting personal interest into qualified residence interest. Tax deductions for investment interest will be restricted to non-corporate taxpayers' net investment income after 1990. Interest paid or accrued on home equity indebtedness or acquisition indebtedness during a given tax year is considered to be qualified residence interest, and this interest is not subject to the restrictions on personal and investment interest. Taxpayers who purchase a qualified residence with a mortgage of up to $1 million can maximize their interest payment deductions by converting consumer interest into a qualified residence interest.

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Planning strategies to minimize the effects of the individual alternative minimum tax

Article Abstract:

The changes made to the alternative minimum tax (AMT) by tax reform have increased the importance of tax planning that extends over several years. The new alternative minimum tax for individuals is more broadly based and more complex. The new AMT adjustments can either decrease or increase the individual's taxable income. Tax preferences have been introduced which broaden the AMT base. The only credits allowed against the AMT are the investment tax credit and the foreign tax credit. Tax planning strategies under the new rules are discussed.

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Distributions through related corporations may still produce unfavorable results

Article Abstract:

Redemption of stock through the vehicle of related corporations has changed considerably in recent years, and the potential for dividend income has grown substantially. The Tax Reform Act of 1986 eliminated preferential consideration for long-term capital gains, but the difference between capital gains and losses and ordinary income and losses is still of importance. Capital losses continue to offset capital gains. Capital losses may be subtracted from other income, only subject to a $3,000 annual limit.

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