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To: drangundsturm
...the tax rules say that principle paid on the loan is not deductable.

That's true for a residential loan, but not for a business loan.

The principal and interest you pay on your loan are business expenses, and you can deduct them from your taxes as such. In order to take advantage of a tax deduction, you must report the total amount of the loan, and the assets and expenditures financed must be necessary to operating the business.

29 posted on 10/16/2008 1:09:25 PM PDT by meadsjn (Socialists promote neighbors selling out their neighbors; Free Traitors promote just the opposite.)
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To: meadsjn
That's true for a residential loan, but not for a business loan.

I respectfully disagree. I have bought and sold several businesses both as stock and asset purchases and I've sat in meetings with $350 per hour tax attorneys educating me on these issues in excruciating detail (and I do mean excruciating). What you say is (usually) correct for a loan for materials or supplies for the business, but not the business itself.

If you buy a business in a stock transaction (without filing a 338(h)(10) election), it is not deductable at all, the sale price goes into your basis, there is no depreciation, and 100% of principal on the loan is paid with after-tax money.

If you buy a business as an asset purchase, then in the kind of business Joe has most of of the value of the business ends up being "goodwill" and any principle has to be depreciated over 15 years or more (if he has significant new equipment that could be depreciated faster but that usually is not the lion's share of the purchase price). Therefore, you can only deduct 1/15th of the asset value per year but typically business loans do not stretch out that long so you end up paying taxes on a good chunk of the principle.

I have done both kinds of transaction (stock and asset) and I have to manage my loan principle vs. taxes very carefully due to these factors.

33 posted on 10/16/2008 1:22:15 PM PDT by drangundsturm
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