Took out a home equity loan for $50K and immediately loaned the money to my S-corp. Where on the 1040 do I deduct the interest on the equity loan payments? Or should the corp make the loan payments and deduct the interest on the 1120-S?
You record the interest in two places:
(1) Interest deduction on Schedule A, either as home mortgage interest, if it's on an equity balance of under $100,000 or as investment interest. (2) The interest portion of the payments the corporation makes to you are interest income reported on Schedule B. If the note between you and the corporation don't provide for an interest rate at least equal to the applicable federal rate, you will need to impute (calculate) what the interest would be. Unless your total income is high enough to start the phase out of itemized deductions, it will probably be a wash on your personal return, the S corporation gets an interest deduction, and the bank gets repaid.
-- Tom Healy, CPA Boulder, CO Web:
Of course you have the option (barring any rules that might limit the deduction) to deducting said interest on schedule a. But the preferred way is for the corporation to deduct it on page one. And this can be done IF a certain election is filed with the return. See your local tax pro for details. that is IF he knows what you're talking about. ChEAr$, Harlan Lunsford, EA n LA Sat 12 Mar 2005
Same question for me, but interest was actual paid out of S-Corp checking account. So it seems S-Corp would deduct it as expense, and it would not show up on Sched A.
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