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Short term capital gains will work too, won't they? Unless the market turns around and heads south, I've got enough of those to offset the margin costs and then some.

Sort of. It depends on whether you have any long term capital losses or any capital loss carryforwards from earlier years.

The old procedure (I don't know if this will change) was to start with your net capital gain -- regardless of holding period. Then you subtract the excess of long-term capital gains over short-term capital losses. Whatever is left over counts as investment income. You then have the option of electing to treat some/all of your income that would qualify for reduced (LTCG) tax rates as ordinary income in order to increase the amount of deductible investment interest expense.

See the instructions to Form 4952 for more information. The 2002 version of this form can be found here: www.irs.gov/pub/irs-pdf/f4952.pdf

Ira
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