Facts and Figures
Timely points of particular interest
Mortgage Interest—In a new case, a couple put a home in a trust but remained liable for the mortgage. They rented out the home to tenants who agreed to pay the mortgage, repairs and insurance. The Tax Court said that the tenants should be treated as equitable owners of the home. Result: Even though the payments were called “rent,” the tenants can deduct a portion as mortgage interest.
Severance Payments—In a surprising new case, a District Court in Michigan ruled that severance payments should not be treated as “wages” for employment tax purposes. Instead, the court characterized the payments as wage-replacement social benefits. As a result, a business that has downsized may choose to file a protective refund claim for past open years. Note: The IRS is expected to appeal this decision.