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Private Lending Question
Old 03-13-2012, 03:49 PM   #1
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Private Lending Question

Is the interest an individual gets from private money lending (real estate), considered "passive" income and therefore taxed at a lower rate ? I believe it is, but just checking. And if that is the case surely a 15% rate (passive) beats the heck out of the 33% bracket.

Anyone with the info ?
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Old 03-13-2012, 04:04 PM   #2
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No.

Interest income is taxed at "ordinary" rates, not "capital gain/dividend" rates.
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Old 03-13-2012, 04:06 PM   #3
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Originally Posted by ferco View Post
Is the interest an individual gets from private money lending (real estate), considered "passive" income and therefore taxed at a lower rate ? I believe it is, but just checking. And if that is the case surely a 15% rate (passive) beats the heck out of the 33% bracket.

Anyone with the info ?
I believe that the answer to your question is... that passive lending is taxed at your personal income tax rate. Should you have rental real estate losses including depreciation, then the passive loss from this activity is limited. The passive losses are limited by an absolute floor of ($25k loss)and phase out with higher incomes.

Having said that, it wouldn't surprise me to have some tax entity like a corporation or a partnership that can take that loss and reduce it to capital gains rates. This is where accountants and the like do their magic to everyone else's detriment.
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Old 03-13-2012, 08:06 PM   #4
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Quote:
Originally Posted by ferco View Post
Is the interest an individual gets from private money lending (real estate), considered "passive" income and therefore taxed at a lower rate ? I believe it is, but just checking. And if that is the case surely a 15% rate (passive) beats the heck out of the 33% bracket.

Anyone with the info ?
The 15% rate has nothing with do with passive income. It is the rate for LT capital gains and qualified dividends under the Bush tax cuts which in any case may not have very long to go.

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Old 03-13-2012, 11:55 PM   #5
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Interest is interest. It's taxed at the same rate as your earned income.
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