Interest Deduction for Balance Transfer Loans on Fund Investment

catdelta · ‎July 28, 2025

Dear all,

If I have a balance transfer offer from a credit card (e.g. 3% processing fee and 0% interest for 12 months), and I cash out this BT to invest in corporate bond fund at 6% yield also for 1 year, would I be able to deduct the 3% processing fee?

If possible, how may I prove that the loan and the investment are a pair? By showing the transaction records that I received the BT cash and immediately invested in the bond fund? Or show I open a new brokerage account?

Thank you very much!

NCperson

the processing fee is not deductible.

Bsch4477

No, the fee is a personal expense. If you had a business and the funds were used for the ordinary and necessary conduct of that business, then the fee would be an investment expense.

Opus 17

I disagree with both my colleagues. Expenses of purchasing investments, including interest on money used to buy investments, is still an eligible deduction. It doesn't matter if the credit card bank calls it a "processing fee", it's still a form of interest. However, the interest deduction is limited to the investment income paid. For example, if you pay 3% interest in 2025, but don't receive the bond interest income until 2026, you must list the interest as an expense on your 2025 return and it will carry forward, to be used as a deduction when you realize the income.

https://turbotax.intuit.com/tax-tips/investments-and-taxes/what-are-deductible-investment-interest-e...

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

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