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Author: jozerandy Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: interest deduction Date: 11/4/1999 3:39 PM
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Needing to close escrow quickly in crazy SF market I bought a house this year by margining stock portfolio. Margin interest exceeds dividends earned on stock. Can I deduct margin interest as mortgage interest?
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Author: hghcpa Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20517 of 121061
Subject: Re: interest deduction Date: 11/4/1999 5:36 PM
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. Can I deduct margin interest as mortgage interest
===========

No - qualifed residence interest (mortgage interest) must be secured by the property subject to the mortgage.

BTW - Reading your post I also think that perhaps the "tracing rules" related to deductible investment interest will preclude you from claiming the margin interest as investment interest - since you did not use the proceeds to finance your investments.

Pete

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Author: jozerandy Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20548 of 121061
Subject: Re: interest deduction Date: 11/5/1999 1:07 PM
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Isn't my house an investment? I used a margin loan to make this investment and am charged interest on this loan...therefore deductible?

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20550 of 121061
Subject: Re: interest deduction Date: 11/5/1999 1:22 PM
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Isn't my house an investment?

It could easily be an investment to you, but it's the IRC definition of investment that is what matters. Investment income is pretty narrowly defined, basically as interest income, dividends, and net capital gains/losses. You didn't say if you live in the house or rent it out. If you live in it, I think the answer is probably not the one you want. If you rent it and if you sell at a gain, I think that gain might be investment income. Anybody got your reference material handy?

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Author: jozerandy Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20564 of 121061
Subject: Re: interest deduction Date: 11/5/1999 6:06 PM
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This IRC stuff is really starting to bug me!
Okay, if the mortgage angle or the house as investment angle aren't kosher, can I just deduct the margin interest I'm being charged due to holding my stock position? I continue to hold my stock position, have taken on a margin loan to do so, am being charged margin interest that exceeds the dividends being collected. The value of the stock being margined has appreciated since taking on the margin loan and I plan on holding this Blue Chip position indefinitely.


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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20566 of 121061
Subject: Re: interest deduction Date: 11/5/1999 6:28 PM
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jozerandy:
This IRC stuff is really starting to bug me!

Boy, it is annoying sometimes, isn't it?

Okay, if the mortgage angle or the house as investment angle aren't kosher, can I just deduct the margin interest I'm being charged due to holding my stock position?

Well, yeah, that's kind of what happens. You report the investment interest, deduct up to your net investment income, then carry the rest over to next year. In the following year, you add the carry over to the current year's interest, deduct the allowable amount, and carry over again. When you decide to sell the stock (presumably with a big gain) the gain is part of the investment income and you'll use up most or all of the carryover.

Now for the planning ideas. If you used the margin loan to get a house, why don't you refinance the house, pay the margin loan, and deduct your interest now instead of later?

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Author: mphipps Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20603 of 121061
Subject: Re: interest deduction Date: 11/6/1999 4:49 PM
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But, go get a morgage and include the cost of marginable securities. Margin interest does go against the cost bases of the house. The thing to do is to quickly pay it back.
But if you did it to cover loan cost or as a down payment. Then I am afraid you might have benn better off sell the securities. You still might be.
But someone would have to show me in writing that I could not claim it as investment expense.

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20656 of 121061
Subject: Re: interest deduction Date: 11/7/1999 10:01 PM
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<<Needing to close escrow quickly in crazy SF market I bought a house this year by margining stock portfolio. Margin
interest exceeds dividends earned on stock. Can I deduct margin interest as mortgage interest?>>

Nope...unless your broker has a mortgage agains the property, you're not paying mortgage interest. And that interest isn't deductible as such.

Hopefully you didn't keep this relationship up too long. By now, you should really have a mortgage loan on the property...and you were simply using the margin loan as a "bridge" loan in the meantime.

But deductions for margin interest are very specific. You can read more about this in the Taxes FAQ area. And since your principal residence is generally not considered "investment", you may find that your interest is completely non-deductible personal interest.

Sorry...but you really should have a tax pro with experience in this area look at this entire transaction ASAP.

TMF Taxes
Roy

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20658 of 121061
Subject: Re: interest deduction Date: 11/7/1999 10:08 PM
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<<But someone would have to show me in writing that I could not claim it as investment expense.>>

It's all there...in black and white.

Check out IRS Publications 550, 530, 535, and 936. You'll see it all there...trust me.

TMF Taxes
Roy



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Author: jozerandy Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20708 of 121061
Subject: Re: interest deduction Date: 11/8/1999 8:18 PM
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You report the investment interest, deduct up to your net investment income, then carry the rest over to next year.

Investment income covers all sources (i.e. money market funds, savings accounts, credit union accounts, rental income, long & short term capital gains, etc.) or just dividends earned against the stock I've margined? Sheesh...the price you pay for democracy...death, taxes, alumni association...



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