Deductions & credits

You may be able to deduct margin interest expense on your Schwab investment account, as long as it qualifies as investment interest under IRS rules. Here’s how it works:

Deducting Margin Interest Expense

1. Investment Interest: Margin interest is considered investment interest if it’s paid on funds borrowed to purchase taxable investments. You can deduct this interest if you itemize deductions on Schedule A of Form 1040.
2. Limitations: The deduction is limited to your net investment income for the year. Any excess interest can be carried forward to future years.
3. Non-Deductible Interest: Margin interest used to buy tax-exempt securities is not deductible. The IRS rules specify that investment interest expense is only deductible if it is paid on funds borrowed to purchase taxable investments.

Helpful Links

• Investment Expense Deduction - Charles Schwab
• Guide to Margin Interest Deduction on Taxes
• IRS Publication 550 - Investment Income and Expenses