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I proposed buying stock on margin that pays a dividend (e.g. MO). The stock pays a higher dividend percentage than the brokerage firm is currently charging in margin interest.

1. I understand I would need to hold MO for some time (60 days?) to have the lower tax rate on the dividends.
2. The margin interest is deductable (essentially at the normal rate I pay). Would the fact that I have this deduction raise the tax rate on the dividend? Someone said it would. During the times that I am paying margin interest, I expect that I will own other stocks (i.e., all my dividend paying stocks together will never be more than my account value).

Any comments and anything else I'm overlooking?


It won't work unless you have interest paying investments. Qualifying dividends (those that are taxable at 5%/15%) no longer count as investment income for the purposes of determining how much investment interest expense is deductible (Form 4952). Qualifying dividends will be treated as long-term capital gains were under the old tax law -- you can use them to qualify investment interest expense deductions only if you agree to have them taxed at your ordinary tax rate.

Ira
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