for example, if you use the excess to start a personal business under IRS tracing rules, it would be deductible on schedule C. if it was used to buy stocks it would be subject to investment interest limitation form 4952.
If the borrowed funds are commingled with other funds that were not borrowed (“un-borrowed
funds”), then potential interest deductions on the loan can be lost. Basically, separate accounts
for one’s business, rental properties, investments, and personal affairs must be kept. Do not
commingle borrowed funds with un-borrowed funds. Try not to use the borrowed monies for
personal expenditures. If one wants to borrow to buy a personal-use item, make the purchase
first from the savings account, then restore the savings account with the borrowed money. In
this scenario, the savings account is an “investment,” and therefore, the loan interest is
deductible as investment interest (which is better than it being nondeductible personal interest).
