interest- income, or expense?

[Frank H. Ellenberger]

Am 21.09.2012 13:55, schrieb Mike or Penny Novack:
> Nope.
> 
> Although I am loathe to give advice like this (not being an accredited
> tax accountant) this one is so serious somebody has to.
> 
> Interest (on loans you give) is NOT capital gains. It is current income.
> It is not capital gains even if you purchase a note (example, a bond)
> discounted well below the face value at maturity because the interest
> rate of this note is below the current market rate. You report that gain
> as INTEREST income which is current income. If you have investments of
> this sort in non tax deferred accounts I strongly suggest you seek the
> advice of a tax accountant.
> 
> Michael D Novack


Mea culpa ;-)

a) I made a mistake in my translation:
My native "Kapitalerträge" should have been translated with "capital
yields" instead of "capital gains" (Kursgewinne).

b) It is a question of your localization:
Here in DE since a few years also capital gains are taxable IIRC, but IANA.


> PS --- In case not clear enough I'll give an example. You buy a note
> (make a loan) with a face amount of $1000 and paying interest at 3% (on
> the face amount) for $970 which is about what the price would be if the
> current market rate for such notes is 6% and the note is due in one
> year. You receive $30 in interest and a gain of $30 when the note
> matures but that gain is reported as interest, not a capital gain. The
> reason is that loans aren't always made in terms of explicit interest.
> Might have no interest paid as such, all being contained within the
> discount.

A really good example!

~Frank