Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev Thread | Next Thread
Author: Sunset3 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: re: Margin Interest Date: 12/9/2005 12:32 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Can anyone tell me if I sell stock for a gain, can I offset this with the loss from margin interest paid?

i.e. if I paid $100 in margin interest can I sell enough stock with a $100 gain and call it a wash? No loss...no gain..

I already have my $3000.00 limit to write off from the tech bubble days!

Thanks,
ST
Print the post Back To Top
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: 81837 of 121061
Subject: Re: re: Margin Interest Date: 12/9/2005 12:52 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Can anyone tell me if I sell stock for a gain, can I offset this with the loss from margin interest paid?

Not directly.

You report your stock gain (or loss) on schedule D. That flows to the front page of your 1040 and becomes a component of your Adjusted Gross Income.

Margin interest is an itemized deduction, reported on schedule A. It reduces your AGI to reach taxable income. Margin interest (a particular kind of investment interest) can only be deducted to the extent you have investment income. Investment income typically consists of interest and dividends. Capital gains can be elected to be a part of your investment income, but by doing so, you lose the favorable tax rate for long-term capital gains. (I'm not sure if dividends also lose their favorable tax rate - I'd have to research that to find out.)

--Peter

Print the post Back To Top
Author: Sunset3 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 81838 of 121061
Subject: Re: re: Margin Interest Date: 12/9/2005 12:57 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Peter,

You answered my question perfectly!

Thanks so much,

ST

Print the post Back To Top
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: 81845 of 121061
Subject: Re: re: Margin Interest Date: 12/9/2005 4:53 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
(I'm not sure if dividends also lose their favorable tax rate - I'd have to research that to find out.)

Yes, they do. Any non-qualified dividends can be used directly as investment income for this purpose, but qualified dividends lose their lower tax rate if the taxpayer elects to include them in investment income so as to deduct margin interest.

Ira


Print the post Back To Top
Author: DtrrrJoel Three stars, 500 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 81863 of 121061
Subject: Re: re: Margin Interest Date: 12/11/2005 2:24 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Capital gains can be elected to be a part of your investment income, but by doing so, you lose the favorable tax rate for long-term capital gains.

If you are electing to use your capital gains to be part of investment income just to deduct an equal amount of margin interest how would there be a tax on that income since the deduction will reduce the AGI by the same amount?

Joel

Print the post Back To Top
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: 81864 of 121061
Subject: Re: re: Margin Interest Date: 12/11/2005 9:56 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
Capital gains can be elected to be a part of your investment income, but by doing so, you lose the favorable tax rate for long-term capital gains.

If you are electing to use your capital gains to be part of investment income just to deduct an equal amount of margin interest how would there be a tax on that income since the deduction will reduce the AGI by the same amount?


Assume the following: you have $100 in investment (interest) income, $100 in long-term capital gain, $200 in margin interest, you are in the 25% tax bracket, and you itemize deductions.

If you follow the default method, $100 of margin interest is included in your itemized deductions eliminating the $25 tax on the $100 in interest income and you pay $15 in long term capital gains tax. Next year you can use the remaining $100 of margin interest to offset another $100 of interest income and save $25 in tax.

If you include the $100 of capital gains as investment income this year, you offset both the interest income and the capital gains and pay $0 tax on this money this year. But, you'll pay $25 in tax next year on the $100 of interest income you can no longer offset.

So, you've lost the benefit of the long-term capital tax rate in exchange for a one-year deferal in tax payment.

There are situations where this is beneficial; usually it is not.

Ira

Print the post Back To Top
Author: DtrrrJoel Three stars, 500 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 81948 of 121061
Subject: Re: re: Margin Interest Date: 12/14/2005 2:25 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Next year you can use the remaining $100 of margin interest to offset another $100 of interest income and save $25 in tax.

Ira,

Thanks for the information. This is taking me time and extra strething of my brain to put it all together. I'm beginning to understand.

How does margin interest from one year offset interest income from a future year?

Joel

Print the post Back To Top
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: 81949 of 121061
Subject: Re: re: Margin Interest Date: 12/14/2005 5:34 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
How does margin interest from one year offset interest income from a future year?

That's a good question. Margin interest is one of the deductions you can carry forward if you can't use it in the year incurred. In that sense it's similar to excess charitable contributions although the specific rules are different.

Ira


Print the post Back To Top
Author: DtrrrJoel Three stars, 500 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 81970 of 121061
Subject: Re: re: Margin Interest Date: 12/15/2005 1:57 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
That's a good question

Any suggestions for a good book or reference material to help me understand the issues of taxes related to investments?

Joel

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev Thread | Next Thread
Advertisement