How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask PDtax Your Own Question

PDtax
PDtax, CPA firm owner
Category: Tax
Satisfied Customers: 1893
Experience:  32 years tax experience, including four years at a Big 4 firm.
Type Your Tax Question Here...
PDtax is online now
A new question is answered every 9 seconds

I receive distributions annually from a limited partnership.

Resolved Question:

I receive distributions annually from a limited partnership. If that is my only income, is mortgage interest deductible against that category of income? (Trying to figure out if there is any reason why I would want to maintain a mortgage if I didn't have to...besides having cash to invest in other places)

As a side note, are limited partinership distributions considered passive income or unearned income (or are the two one and the same?)? And is passive income calculated as part of your "gross" income?
Submitted: 10 months ago.
Category: Tax
Expert:  PDtax replied 10 months ago.
Welcome to the site. I'm PDtax, and will be helping you today.

Mortgage interest is deductible as an itemized deduction, but only after you net your income from this LP and other sources on your 1040.

Limited partnership distributions are considered passive income and is part of your gross income. Unearned income can include this kind of distribution, and will include other investment types, such as interest and dividends.

Thanks for asking at Just Answer. Please advise if you need anything more, or leave positive feedback to close out your question. I'm PDtax.
Customer: replied 10 months ago.
After I "net" the income? Are you saying for instance, that if I am in a 15 percent tax bracket, I will get a small benefit for this deduction whereas if I am in a 39 percent bracket I will receive a greater benefit? If not, what are the implications of what you are saying?

You also say lp distributions are passive and "can" be considered unearned income. Can you please clarify?
Expert:  PDtax replied 10 months ago.
After I "net" the income? Are you saying for instance, that if I am in a 15 percent tax bracket, I will get a small benefit for this deduction whereas if I am in a 39 percent bracket I will receive a greater benefit? If not, what are the implications of what you are saying?

If your only income is a LP distribution, you can't match your mortgage debt against it unless you took out the mortgage specifically to make the LP investment. I meant that reporting your LP income and mortgage interest on your personal tax return (Form 1040) would give some netting. If you are in a low bracket, mortgage interest likely produces a marginal tax benefit at your bracket, so low income (15% bracket) will only allow low tax benefits (15%) with mortgage interest. Include the notion that a standard deduction is part of the math, and your mortgage interest may generate much less than the 15% bracket savings.

Standard planning advice suggests that having deductible mortgage interest is a good idea when you are in the higher brackets, such as 39%. I do not give this advice.

If your investment portfolio generates a higher return than paying off a mortgage, one can see the wisdom of retaining a net higher return. Since your question does not refer to higher portfolio returns, this is not applicable.

Unearned income is a larger class of income, and includes LP distributions as well as portfolio income, like interest and dividends. Unearned income is a more prominent class of income now because this income class will be subject to a Medicare 3.8% surtax. LP income like yours is also considered passive. Both passive and portfolio incomes are considered unearned.

Thanks again for asking at Just Answer.
Customer: replied 10 months ago.
Thank you pdtax. For all intents and purposes, my only income is from various lp distributions. The mortgage is on my primary residence which has nothing to do with my lp investments. So, since I can't deduct this type of mortgage interest against that type of income, it doesn't make sense to have a mortgage if I can pay it off or down ( assuming money is sitting in cash gaining close to nothing at the moment). Did I get that right?

And, I'm going to get hit with an additional 3.8 percent tax for Medicare...because all of my income is also unearned :)
Expert:  PDtax replied 10 months ago.
It makes sense to pay it down or off. Think of it as a risk-free return on your $. Paying off 4% mortgage debt is just like getting that return over the remaining life of the debt.

And, the 3.8% surtax does not apply to you unless your income is substantial ($200,000 or more as a single taxpayer). It applies only to high income taxpayers.

I hope that covers it for you. Positive feedback lets site management know you are pleased with my work and closes out your question.
PDtax, CPA firm owner
Category: Tax
Satisfied Customers: 1893
Experience: 32 years tax experience, including four years at a Big 4 firm.
PDtax and 2 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.