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Thread: Can premium for life insurance taken out for mortgage loan be deducted?

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    Can premium for life insurance taken out for mortgage loan be deducted?

    Hi,

    Is it allowed to deduct the premiums for life insurance that was taken out for the purpose of a mortgage loan (ie. to comply with the requirements for the mortgage loan)? The property for which the loan was taken out, is where the business operates from. This life insurance would not have been taken out if the mortgage loan was not entered into...

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    Yes, if the property you bought is used for business you can deduct the expenses on your life policy against income, just thensame way you are claiming the bond repayments. However I'm 99.9% sure that your current policy is non-conforming and that has to change but it will have to be increased. Basically a non-conforming policy means that you are paying it with after tax money and the proceeds of such policy won't be taxed. If you have a conforming policy where you claim the policy premium as expense then the proceeds will be taxed, therefore you have to increase the cover amount to be sufficient to cover the property after the taxation. In both cases the policy will be company owned. Is there a cession on the current policy and is it for the value of the bond?
    For tax purposes you can also have preferred compensation policies, key man policies, buy/sell agreements and so on, it all depends how the business is structured and whatbarebthe goals. Also if you are payin yourself a salary your salary could be restructured to maximize tax efficiency. if you would like to give me specific information you can PM me and i'll get back to you with the correct answers.
    ---There is no traffic at the extra mile---

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    Dave A (22-Feb-12), J7J (22-Feb-12)

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    Thank you, Nickolai.

    The entity is operating as a partnership. So the life insurance is on the partners' lives, as they also share the responsibility for the bond.

    The life insurance was added to the outstanding amount on the bond. So the life insurance is paid for as part of the bond repayment every month. So a small portion of the interest paid on the bond every month (which is the tax deductible expense of the repayment), would be for the life insurance.

    Does the information help you to assess whether the premium for the life insurance is tax deductible or not?

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    The policies should be conforming in this case and a legal buy/sell agreement should be put into place instead of a normal life cover. Let me PM you so we can rather chat over the phone to get more details.
    ---There is no traffic at the extra mile---

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