@prash wrote:
@Opus 17
When you have short term capital gains, you can offset with
1.)Past carryover losses
2.)Investment Interest Expense
Question:
1.)Which ones take priority?
2.)If i go with standard deduction every year, can I accumulate the margin-interest(aka investment interest expense), and add it up, until the day I can itemized and offset it in future years?
Short term loss carryovers are applied to short term gains, and long term loss carryovers are applied to long term gains. This is done directly on Schedule D.
Investment interest can be deducted up to the amount of net investment income. Net income is income after any other deductions including carryovers, so the interest is deducted against any net income after carryovers.
You must list your investment interest expense as a deduction every year, take any allowable deduction, and track your carryforward on form 4952. You can't just pop up 10 years later and claim 10 years worth of interest.
https://www.irs.gov/pub/irs-pdf/f4952.pdf
Also, you will need to review form 4952 and its instructions carefully and perhaps seek professional advice. Based on the instructions to form 4952, "investment income" does NOT include capital gains or qualified dividends. (It would include ordinary taxable income such as non-qualified dividends, or rental income on schedule E for example, but does not include capital gains.)
There is an option to treat capital gains as ordinary income on line 4g of form 4952, but this means that the capital gains income will be taxed as ordinary income instead of at lower capital gains rates. This is a complicated situation that I have not studied, and whether this is a net benefit to you is something I can't address. (I suppose it would be a net benefit if you had enough interest expense to deduct against the income, but I'm not sure.).
Further professional advice is recommended.
