Suppose you have:
Checking: $50k in cash
Brokerage: $1m in stocks
You use a bit of margin to go longer on stocks:
At the end of the year, you can deduct the margin interest against capital gains on your taxes IIUC.
You decide to move $30k from checking to your brokerage to reduce margin interest, anticipating that you won't need the cash. Now you have:
You realize you need an extra $10k in cash. So you move some from your brokerage to checking again:
Because you've used margin to withdraw cash for spending purposes, at least that portion of your margin interest can no longer be deducted IIUC. This is a little confusing to me, since you've just barely moved that cash from checking into your brokerage.
Is that right?
If so, how do you separate the margin you've used for investments vs. withdrawals? Do brokerages help with this? Should you use separate accounts at your brokerage so that you can track margin for investment vs. spending purposes? How would that work?
If you're in this position:
And you'd like to sell $100k stock to buy a yacht, how do you do that without dirtying your account around margin for investments-vs-spending? Naively, I think this would happen:
You sell the stock and have:
You withdraw the $100k for the yacht and have:
Does that mean that the interest on the -80k is no longer deductible?
What if you did this, start with:
Sell 180k stock to get to:
Then withdraw $100k to buy the yacht.
Then buy stock to bring your margin balance where you want it:
Is the interest from the -80k now deductible? Isn't this just a roundabout way to achieve the previous position?
Is the only way to keep this sane to never withdraw from the margin account?
