Deductible Investment Interest
I'm using FreeTaxUSA, and I'm offered the Deductible Investment Interest. Setting aside (or not!) how this ever made it into the tax code, does anyone know how to take advantage of it with interest rates where they are today?
Here's the description:
> Deductible investment interest is interest paid on margin accounts or interest paid on loans used to buy or carry investments. For example, if you get a margin loan through your brokerage account and use it to buy more stocks, then the interest you pay is investment interest. Another example would be if you bought land to hold as an investment, then the interest expense you pay on the loan to obtain the land is investment interest.
> Investment interest is deductible up to the amount of your investment income. Investment income includes dividends, interest income, and royalties. Disallowed investment interest is carried forward and can be used on future year tax returns.
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That's something I hadn't really considered, but I think step 1 is - as usual - do you itemize or are you anywhere near? Because unless you have a huge account to take margin on… and similarly sized investment income to offset… I'm not sure it'd be worth much.
Probably worth a ton to billionaires that live off margin, though (hence it being in the tax code).
I fell down a bit of a rabbit hole on this recently, and your intuition is correct, it's a tax loophole for very rich people. One of the common examples I saw given by private wealth management companies was:
There's a few nuances in there but it's basically a tax break for rich people.
Ah, that makes sense. A workaround for the mortgage interest deduction limitations.