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From: clif@intelca.UUCP (Clif Purkiser)
Newsgroups: net.taxes
Subject: Re: Re: Re: tax deduction of prepaid mortgag
Message-ID: <50@intelca.UUCP>
Date: Fri, 30-Aug-85 03:00:12 EDT
Article-I.D.: intelca.50
Posted: Fri Aug 30 03:00:12 1985
Date-Received: Sun, 1-Sep-85 04:40:46 EDT
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Organization: Intel, Santa Clara, Ca.
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> 
> The whole crux of when tax bills and payments are deductible is whether one
> pays ones taxes according to the cash or the accrual system.  Probably 99%
> of us pay by the cash system which means that any tax deduction is only
> deductible in the year in which it was PAID.  The accrual system (and this
> is acceptible by the IRS) allows one to claim a deduction in the year in
> which it was DUE regardless of when it was paid.  There are some caveats
> with the accrual system, but this is the general idea.  Incidentally, one
> cannot bounce back and forth between the two methods on a year to year
> basis.  One must select one of the methods and stick with it.  It requires
> permission of the IRS to change between these 2 accounting systems.

	There are some real advantages with using an accrual accounting 
system  the primary advantage is the ability to deduct the interest on a 
mortage with negative amoritization.   Most Adjustable Rate Mortgages (ARM) and some fixed mortgages (GPMs) allow negative amoritization (i.e. at the end of 
the year the loan balance is larger than the start of the year) .  
Unfortunately, the IRS takes a dim few of people who use a cash system deducting this additional interest because they didn't pay it in the year that it was
accured.  However if you are on an accrual accounting system you are allowed 
to deduct all of the interest the banks charged for you loan. 

	Accrual accounting also solves the problem about when you can deduct 
Dec interest, you always deduct in the year it was accrued.  The only 
disadvantage with an accrual system is you cann't play games at the end of the 
year to try to minimize your tax bill. I always make it a practice to take as many
deductions as possible as soon as possible, the less time Uncle Sam has my money
the better.



(Almost all business use it 
-- 
Clif Purkiser, Intel, Santa Clara, Ca.
HIGH PERFORMANCE MICROPROCESSORS
{pur-ee,hplabs,amd,scgvaxd,dual,idi,omsvax}!intelca!clif
	
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