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Author: donkeyhoetee One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: margin account taxes?? Date: 5/17/2001 1:29 PM
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i have a margin account with $5,000 in interest on the margin loan.

if i sell $5,000 of stock in that margin account, can i claim
that sale as payment of the margin account interest and not towards
the loan amount?

thx
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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51051 of 121219
Subject: Re: margin account taxes?? Date: 5/17/2001 4:43 PM
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I'm not sure I understand what you are asking, but here's what will happen.

Every time the broker posts an interest charge to your margin account it gets added to the principal you owe. The only time the distinction is important is when you file your tax return.

When you sell stock in a margin account, the proceeds are usually applied to reduce the size of the outstanding loan which includes the original principal and all of the subsequent margin interest.

You do not have to apply the proceeds separately to interest or principal.

When you file your taxes, you may be able to deduct the amount of margin interest your broker has charged you as an itemized deduction. You will have to fill out Form 4952 and Schedule A to determine how much is deductible.

If this hasn't answered your questions, try asking again.

Ira

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Author: donkeyhoetee One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51074 of 121219
Subject: Re: margin account taxes?? Date: 5/18/2001 5:04 PM
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ira,

thx for your reply..if i ready you correctly then,

principle is $100,000 in margin account

margin interest charge is $5,000..

If i sell $6,000 worth of shres in the margin account, then

i paid the $5,000 interest and reduced my principle to $99,000

if i file an itemized tax form then i can declare that
$5,000 margin interest...

Is that right?

thx again,

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51077 of 121219
Subject: Re: margin account taxes?? Date: 5/18/2001 5:57 PM
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Everything is correct except the last statement, "if I file an itemized tax form then i can declare that $5,000 margin interest..."

Actually, your statement is correct as worded, but, if you meant "I can deduct the margin interest" then the answer is "maybe."

Margin interest is deductible if the loan was used for investment purposes (you can't take a margin loan to go on vacation, etc.), and to the extent that you have investment income (interest, dividends, short-term capital gains). If you have long-term capital gains, you can elect to have them taxed at ordinary rates in order to deduct your margin interest. Any margin interest which can't be deducted this year can be carried forward to next year.

See Form 4952 and its instructions for all the details.

Ira

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Author: donkeyhoetee One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 51105 of 121219
Subject: Re: margin account taxes?? Date: 5/20/2001 4:00 PM
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ira,

thank you for your input..

best rgds

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