Help Employees to Save Tax With an Employee Share Scheme – Australian Taxation

January 13, 2010 by Veronica Carrillo
Filed under Finance

Home mortgage interest is deductible in computing the Regular Tax, although certain limitations apply. The Alternative Minimum Tax similarly allows this deduction, but it is subject to differences in the limitations. Understanding these differences will allow a taxpayer to plan in advance to minimize the AMT impact.

When you decide to hire one, understand that you will have to put up a significant amount of money which is called a retainer. Typically, a minimum of $10,000 is required depending upon the size of your case. This retainer must be replenished each time he does work for you and uses most of that money in order to maintain your relationship with them. Depending upon the level of your problems, you may want to wait until you are sure that you need to hire one. If you are personally going to negotiate with the IRS, you may need some additional help in the future, especially if you were incapable of standing your ground and proving your point.

Additional restrictions apply, however, before the interest is AMT-deductible. On home equity loans one must look to how the loan proceeds were used. If used to fix up or otherwise improve the primary residence, the interest is fully deductible for the AMT. If instead the money is used to buy a new car (a common way to get cheaper financing than a car loan), or other purpose not involving work on the residence, the interest is not deductible for the AMT.

For example, assume $15,000 in interest on the first mortgage, and $2,000 of interest on the equity line of credit that was used to buy a new car. The total interest deduction for the Regular Tax is $17,000, yet for the AMT the deduction is limited to $15,000. That $2,000 is one of the items reported on the Form 6251.

For Regular Tax purposes, a second home that will qualify for the mortgage interest deduction includes certain mobile homes or boats, in addition to the traditional single family home or condominium. For purposes of the Alternative Minimum Tax, however, only interest on real estate loans is deductible – interest on the mobile home or boat loan is not deductible for the AMT.

From a planning point of view, a taxpayer needs to know the AMT consequences of these different types of borrowing. Failure to do so can make a big difference in the actual cost of the loan. If it is deductible, Uncle Sam is paying part of the cost for you; if not, you\’re carrying it all on your own.

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