Tax Deduction Consulting: Margin Loan Interest Gorham ME
Michael J. DellOlio & Associates, L.L.C.
Education: B.S.,MBA,J.D.,NASD Series 6,7,24,63,65; Maine Insurance License
Years of Experience: 24
Invoice, Estate Planning, Business Planning, Portfolio Management, Trustee Service, Pension Planning, Retirement Planning, Tax Planning, Tax Returns, Employee Benefits, Stocks and Bonds, Mutual Funds, CD Banking, Annuities, Life Insurance, Disability Income Insurance, Long Term Care Insurance, Medical Insurance, BuySell, Compensation Plans
Tax Deduction Consulting: Margin Loan Interest
Margin Loan Interest Deduction
One area of confusion in the area of tax deductions comes from interest. Is there a margin loan interest deduction? How does a margin loan fit into the overall interest deduction situation?
A margin loan is a loan taken out mainly for the purposes of investment. It uses stocks and other investment securities as collateral. The main benefit of a margin loan is that it allows you to keep your investments intact while at the same time using them to provide additional funds for investment. There are some drawbacks to margin loans as well as the potential for good. Like all investments, there is risk that is almost always directly connected to the potential rate of return. However, is there a margin loan interest deduction?
Is the interest paid on the margin loan deductible as investment interest? Ultimately, the answer is going to lay in the use of the loan funds. The IRS allows interest as a deduction when the loan proceeds are used for the purpose of income producing investments. If the loan is for personal purposes, the interest is not deductible. Since the purpose of the margin loan, by definition almost, is to provide investment capital, any interest will be deductible.
Of course, you must make sure that the loan proceeds are used for income generating investments. If you take the proceeds from the loan and deposit it in a savings account until the time you are ready to make the investment, this is not considered a personal purpose. Since the funds are basically on hold until being invested, the interest on them might still be considered investment interest.
The amount of investment interest that you are allowed to deduct, including margin loan interest, can not exceed the total amount of your investment income in any given year. If you pay more investment interest than you have investment income, you can carry over the excess to subsequent years. The investment interest is calculated on IRS Form 4952, the Investment Int...