cdmt wrote:

- quote -

Technically, yes, because it appears that you entered into
an arm's length transaction and you were liable for it (and
paid it). Any "refund" of it did not occur in the same tax
year.

However, if you left yourself the ability to amend the
agreement back to the starting date (if done within the
first year or other reasonable period), then this action
might be such an amendment instead of an overt gift. That
case would yield no deduction for you.

- quote -

If you are not an accrual basis taxpayer (most individuals
are cash basis), you paid it in 2004 -> 2004 is when you
deduct it.

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cdmt <cdmt[at]sbcglobal.net> wrote:

- quote -

Assuming the gift is a true gift, from what you told us, you
can deduct the interest. The gift is not reportable.

- quote -

If you pay it in 2004 then you can deduct it only in 2004.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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- quote -

The interest you pay is still deductible at your level and
its income at his level. And the cashback is a gift. In
close families you might take a look at relative tax rates
to see if there is a better arrangement.

- quote -

NO, as a cash basis taxpayer you deduct things in the year
you actually paid them.

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Grandfather generously bought my wife and my home completely
with the intension of giving us a low-interest family loan.
He charged us the Applicable Federal Rate minimum on the
interest. (At the time was 4.6%) We had the contract
legally drawn up and got our amortization schedule. We
started paying interest on the home since May of 2003. Now
I understand that this interest is deductible as it sits,
but it got complicated.

Now here, at the beginning of 2004, grandfather decided that
he felt bad for charging us interest and gave us a check in
the amount of the interest we paid him in 2003. He said
that it was a gift, and that he was going to pay taxes from
the "foregone" interest that he technically earned from us.
So I guess this basically means he is going to pay income
tax on the interest that he earned from us.

The thing I'm wondering is, if we should still deduct the
interest. My mind is telling me yes, because he is
reporting the amount of interest we paid him as an income on
his taxes - and that he simply gave us a gift.

Question 2
Since our loan is a family loan, we get billed for the full
amount of property taxes annually. I understand that
property taxes (like for cities, police, schools and
counties) are deductible. My tax bills from the city and
county say that the bills are due by Jan 31, 2004. I am
going to pay them tomorrow which will be Jan 14, 2004. Am I
able to deduct these 2003 property taxes from my 2003 taxes
even though I paid them in Jan 2004?

Any help would be greatly appreciated.
Thanks a bunch guys/gals!
Christian R.

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