To Avoid Fees on So-Called Free Checking Accounts, Learn the Rules and Speak Up

Q. My employer deposits my pay directly into my checking account with Bank of America, an arrangement that the bank saidentitles me to a free checking account. But in each of the last two months, the bank charged me a $2 “in branch transaction fee.”

I don’t understand the reason for this service charge. I did go to the teller’s window to make two deposits, but I can’t imagine that I should be charged $2 per visit.

What is going on? And what, if anything, can I do about this? After all, there are times when an ATM isn’t going to work out.

--C.M.L.

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A. We took your question to Katherine Miller, manager of the BofA Civic Center branch in Los Angeles for personal attention, and by now you know that the two $2 fees have been removed. But let’s explain why they were levied to start with and how you might have avoided them.

The fact is that the direct-deposit arrangement you have with the bank entitles you to what it calls a “Versatel checking account.” This type of account allows you to make deposits and withdrawals only at automated teller machines. Any time you use the services of a teller for withdrawals or deposits, you face a $2 transaction charge.

The good news is that you can escape the fee when situations absolutely require you to use a teller. (After all, are there many occasions when you’d rather wait in a long line to see the lone teller than take your chances at an ATM?) All you have to do is ask the teller to remove the fee because special circumstances brought you inside the branch. Unless you ask, however, the bank’s computers will automatically assess the fee because all they know is that you have an account that offers only the Versatel version of free checking.

The key here is in knowing the rules--they are printed in the brochure you received when you signed up for the Versatel account--and knowing how to ask for dispensation from them.

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Q. My 401(k) program at work allows for limited borrowing. I am thinking of taking out a loan to buy some income-producing investment property. If I do this, will the interest that I pay on the loan qualify as a deduction against the income generated by the property?

--H.E.H.

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A. Assuming that you are an employee of your company and not an owner or principal as defined by the tax code governing this issue, you would be entitled to consider the interest you pay on the investment property mortgage an expense against any revenue you receive. Without getting into detail here, if you were an owner or officer of the company, different rules would apply that could limit your ability to borrow against your 401(k) account.

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Q. In a recent column, you said interest on loans from a brokerage margin account are not tax-deductible if the loan proceeds are used for a home purchase, because the purpose of the loan was not an investment and the loan was not secured by the home. That sounds right. But my accountant said I cannot deduct interest on a margin account loan whose proceeds I used to purchase a piece of investment property. Can this be right?

--J.B.N.

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A. The Internal Revenue Code requires taxpayers to trace how they use the money they borrow, no matter the source of the loan, in determining whether the interest qualifies for a tax deduction.

In your case, our experts say, you are entitled to treat your interest payments as an expense of operating the rental property and deduct it against any income generated by the property, just as you would any other business expense. This has the effect of reducing any income generated by the investment.

But what if you have a loss on this property? This loss may or may not be deductible, depending on your annual income and whether you actively manage the property. Even if you do not qualify to deduct any loss from the investment property against your other income, at the very least the interest expense can offset income generated by that property. Please note the critical distinction outlined here, because this is probably where the communication between you and your accountant is breaking down.

Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail carla.lazzareschi

@latimes.com