The Waterbury Democrat., 1943-02-10
YOUR INCOME
 TAX
No. 3i


 INTEREST DEDUCTIONS (Part 1)
 Interest on indebtedness, with cer- tain exceptions, Is an allowable de- duction in arriving ct net income for Federal income tax purposes. Deductible interest includes both irl- terest incurred in connection with ones business or profession, and in- terest on personal indebtedness. 1n- terest on business indebtedness should be shown either in Schedule B to arrive at the net amount of rents and royalties entered as item 6 Of the return, or in Schedule H to arrive at the net profit Cor loss) shown in item 9 of the return Form 1040, but interest on personal in- debtednesS should be shown under item 13 of Deductions. Interest shown in item 13 must also be sup ported by an explanation Gin Sched- ille O of the deduction.
 Interest on personal indebtedness may include interest on @ mortgage on ones home, interest on the pur- chase price of household goods pur- chased on the installment plan, as well as interest on personal loans. Interest paid on a judgment or on unpaid taxes is also deductible. It is not necessary that the indebted ness be secured by 0 lien or Hnort- gage for the interest to be deduct ibie, but there must be @ legal ob- ligation on the taxpayer to pay the interest. .
 Tn entering interest deductions, several distinctions and qualifica- tions must be kept in mind. In the case of e mortgage loan on ones home, the contract frequently calls for Q monthly payment covering both interest and amortization, of the loan. As a portion of the pay Inent represents interest, and por- ton each payment made reduces the amount representing interest on the next irstallmeat and increases the amount representing repayment of principal. 1t Is necessary to make a separation of the two amounts in totaling the interest paid during the year. Tn P. Fl. A. loans the monthly payment includes not only interest and amortization, but an amount for loan insurance, accrued taxes, and fire insurance. Ordinarily the in. stitution holding the mortgage will supply the rnortgagee with a state- rnent of the interest paid during the year. -r
 Terant-stockholders of coopera- tive apartments may also include as interest deduction the proportion of interest paid or incurred by the apartment corporation on It's olt- standing indebtedness contracted for the purpose of acquisition, con. struction, alteration, rehabilitation, or maintenance of the apartment building, or in the acquisition of land on which 1t is located.
 Likewise in the case of personal loans and installment purchases, Q portion of the payments frequently represents insurance" and finance charges" As only the amounts rep resenting interest are deductible, 1t is advisable to obtain Q statement from the store or finance company as to the amount of the payments which represents interest. Where the contract of purchase provides only, for payment by a series Of pay. merts, with no mention of interest no interest would be deductible.
 Frequently interest is in the form of discount, that is, the amount or the interest is deducted from the of the loan to the borrower at the time of making the loan. Such discount would be an allowable interest deduction at the time the loan is paid Cor, in the case or Q taxpayer on the accrual basis, as the interest accrues).