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Author: PhotoPhool Three stars, 500 posts Old School Fool Global Fool Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121598  
Subject: Is margin interest tax deductible Date: 12/29/1998 9:34 PM
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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?
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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: 7760 of 121598
Subject: Re: Is margin interest tax deductible Date: 12/30/1998 3:02 PM
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[[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).

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