I used a margin loan to make a downpayment for my primary house. I later closed the margin loan and paid interest. Is the margin interest tax deductible ?

[ColeenD3]

No. To be eligible to deduct a mortgage, it must be a secured debt.

You can deduct home mortgage interest only if your mortgage is a secured debt. A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that:

1. Makes your ownership in a "qualified home" security for payment of the debt,
2. Provides, in case of default, that your home can be used to satisfy the debt, and
3. Is recorded or is otherwise perfected under any state or local law that applies.

Mortgage Interest

[Jewel61]

Can you provide references to IRS documentation for this deduction not being allowed?

[Opus 17]

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@Jewel61 wrote:

Can you provide references to IRS documentation for this deduction not being allowed?

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See publication 936, page 3, "Secured Debt."

[Mike9241]

the requirements are in IRC code section163(h)(3)

the secured debt requirement  IRC 163(h)(3)(B)(i)(II)

nor under the tracing rules would the interest be investment interest.

see this link

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-i-used-a-margin-loan-to-make-... 

[Jewel61]

I have a tax professional who is telling me that my home is an "investment" and, therefore, my margin loan interest is deductible.  Publication 936 just talks about mortgage interest (which a margin loan is not).  

I'd like something I can share which would clarify this situation.

[Opus 17]

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@Jewel61 wrote:

I have a tax professional who is telling me that my home is an "investment" and, therefore, my margin loan interest is deductible.  Publication 936 just talks about mortgage interest (which a margin loan is not).  

I'd like something I can share which would clarify this situation.

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No. The IRS makes a distinction between personal property and investment property.  Your personal home, where you live, is not being held as an investment.

Then, even if you could treat the home as an investment, you can only deduct interest against the income produced by the investment.  No income, no deduction.  You could report the interest, and carry it forward until you had income from the investment property (such as capital gains when you sell).  But under normal circumstances, you can exclude the first $250,000 of capital gains from tax when you sell your personal home.  If this is an investment, you don't get the capital gains exclusion, so you would pay more tax even if you could carry forward the margin loan interest for the indefinite future.  

The investment interest calculation is reported on form 4952,

https://www.irs.gov/forms-pubs/about-form-4952

For the schedule A mortgage interest deduction, the loan must be secured by the home (which this was not).

See also publication 550.

https://www.irs.gov/publications/p550

This blog post

https://ttlc.intuit.com/turbotax-support/en-us/help-article/homeowner-tax-credits-deductions/differe...

[Opus 17]

Suppose you got a hot stock tip, borrowed agains your portfolio, and made a big profit on the new stock.  You can deduct the interest on the margin loan against that income. If you pay interest in 2025 but you don;t sell the stock until 2026, you carry the interest forward and can apply it to the income then.

Your personal house doesn't produce income, there is nothing to deduct.  See the instructions for form 4952 (page 3-4 of the PDF), and see the comment about personal vs investment property.

[Jewel61]

I do appreciate your help and I read things the same way you do.  

However, I know that a year ago, I found a paragraph in one of the many IRS instructions and publications that I read that specifically addressed this issue.  It was something to the effect of "The interest on a margin loan used to fund a home cannot be claimed as investment interest".  I've been trying to find that for the last 6 months to no avail.  

[Opus 17]

I don’t know why you need to find that specific sentence, since it supports everything else we’ve been saying.  You can’t treat a margin loan used to buy a house as investment interest, because it is not investment property. But that is not the same thing as saying that you can use it as home mortgage interest instead, because it doesn’t fit the rules for that deduction.  (Margin loan interest used to buy a home does not fit the rules for any interest deduction.)