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Originally Posted by Boomer
Thanks. It is good to know we were talking about two different types of CDs. I was beginning to think my question was making no sense at all because I had not been clear enough or I was being a dingbat.
Turns out, we were just talking apples and oranges…..or maybe apples and apple pie.
Regarding imputed interest, I did not really think that was it either, but happened to derail a bit from the CD topic at hand because I think the 1990s must have called. That’s the last time I heard of imputed interest being a factor and that was only with mortgage papers held privately.
I think mortgages back then were somewhere in the 8% range. A person-to-person mortgage could be at more than the going CD rate but less than the market’s mortgage rate, but supposedly not by a whole lot. Don’t know why. Such a loan would certainly not be usury lending. That’s the opposite, of course.
Oh well, that was a long time ago and that part was way off track anyway. This thinking I do about taxes is a curse for me sometimes. Sends me down a rabbit hole.
Boomer
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The reason that the IRS applies imputed interest to some low rate loans is to prevent high income taxpayers from avoiding income tax by making below market rate loans and receiving tax free compensation in another form. Where there is a way to avoid taxes, clever people will figure it out.