If I buy stock on my margin account does the interest expense become part of the basis and is thus eventually tax deductible? Or is the interest expense subtracted somewhere else?
[[If I buy stock on my margin account does the interest expense become part of the basis and is thus eventually tax deductible? ]]Nope. Margin interest (which is really part of "investment interest" is a complete separate animal. If you generate investment interest expense, it is reported on Sch A as a part of the "interest expense" section.[[ Or is the interest expense subtracted somewhere else?]]Yup. As an itemized deduction. So if you don't itemize, you may lose the benefit of this deduction. In addition, there are very specific rules with respect to the investment interest deduction. Basically, you can only deduct investment interest up to your net investment income (generally your interest and dividend income, net short term capital gains, and elected long term capital gains...less any investment expenses that you may have). You can read more about investment interest expense in the Taxes FAQ area. Check it out. You can also read more about the investment interest deduction by reading IRS publication 550 and reviewing IRS Form 4952 (where investment interest expenses are reported).TMF TaxesRoyWant to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. There is still time available to do that tax planning (and tax saving) before the end of the year. So just click on this link (http://www.foolmart.com/market/product.asp?pfid=MF+013+I) to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on http://www.fool.com/school/taxes/taxes.htm and you'll be right at the home page. Pay special attention to the "archives" section. Check it out. Finally, if you need to get to the IRS web site, click on http://www.irs.ustreas.gov to go directly there.
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