Loans - Loans
Loans - Loans





About Loans - Loans

426 (1955)(giving the three-prong standard for what is "income" for tax purposes: (1) accession to wealth, (2) clearly realized, (3) over which the taxpayer has complete dominion). An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.
An unsecured lender must sue the borrower, obtain a money judgment for breach of contract, and then pursue execution of the judgment against the borrower's unencumbered assets (that is, the ones not already pledged to secured lenders). Common personal loans include mortgage loans, car loans, home equity lines of credit, credit cards, installment loans and payday loans. Credit card companies in some countries have been accused by consumer organisations of lending at usurious interest rates and making money out of frivolous "extra charges". For other institutions, issuing of debt contracts such as bonds is a typical source of funding. For purposes of calculating income, this should be treated the same way as if Y gave X $50,000.
If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. In different time periods and cultures the acceptable interest rate has varied, from no interest at all to unlimited interest rates. In insolvency proceedings, secured lenders traditionally have priority over unsecured lenders when a court divides up the borrower's assets. In the United Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974.
In the context of college loans in the United States, it refers to a loan on which no interest is accrued while a student remains enrolled in education. It usually involves granting a loan in order to put the borrower in a position that one can gain advantage over him or her. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. The Internal Revenue Code lists “Income from Discharge of Indebtedness” in Section 61(a)(12) as a source of gross income. The amount paid to satisfy the loan obligation is not deductible (from own gross income) by the borrower.
The credit score of the borrower is a major component in and underwriting and interest rates (APR) of these loans. The duration of the loan period is considerably shorter — often corresponding to the useful life of the car. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. The monthly payments of personal loans can be decreased by selecting longer payment terms, but overall interest paid increases as well. Thus, a higher interest rate reflects the additional risk that in the event of insolvency, the debt may be uncollectible.
Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount. [22] Thus, if a debt is discharged, then the borrower essentially has received income equal to the amount of the indebtedness. A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. A subsidized loan is a loan on which the interest is reduced by an explicit or hidden subsidy. Abuses can also take place in the form of the customer abusing the lender by not repaying the loan or with an intent to defraud the lender.
Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower is discharged of indebtedness. An unsubsidized loan is a loan that gains interest at a market rate from the date of disbursement Demand loans are short term loans [1] that are atypical in that they do not have fixed dates for repayment and carry a floating interest rate which varies according to the prime rate. For a more detailed description of the “discharge of indebtedness”, look at Section 108 (Cancellation of Debt (COD) Income) of the Internal Revenue Code. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time.
In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. Interest rates on unsecured loans are nearly always higher than for secured loans, because an unsecured lender's options for recourse against the borrower in the event of default are severely limited. Loans can also be subcategorized according to whether the debtor is an individual person (consumer) or a business. Loans to businesses are similar to the above, but also include commercial mortgages and corporate bonds. Most of the basic rules governing how loans are handled for tax purposes in the United States are codified by both Congress (the Internal Revenue Code) and the Treasury Department (Treasury Regulations — another set of rules that interpret the Internal Revenue Code).
The fixed monthly payment P for a loan of L for n months and a monthly interest rate c is: The interest rates applicable to these different forms may vary depending on the lender and the borrower. The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. The most typical loan payment type is the fully amortizing payment in which each monthly rate has the same value over time. [10] The rationale here is that one asset (the cash) has been converted into a different asset (a promise of repayment).
[11] Deductions are not typically available when an outlay serves to create a new or different asset. [14] In effect, the promise of repayment is converted back to cash, with no accession to wealth by the lender. [16] Interest paid represents compensation for the use of the lender’s money or property and thus represents profit or an accession to wealth to the lender. [17] Interest income can be attributed to lenders even if the lender doesn’t charge a minimum amount of interest. [19] In general, interest paid in connection with the borrower’s business activity is deductible, while interest paid on personal loans are not deductible.
[2] Otherwise, it may refer to a loan on which an artificially low rate of interest (or none at all) is charged to the borrower. [8] Since the borrower has the obligation to repay the loan, the borrower has no accession to wealth.