Investment interest expense

Forum|Forum|3 years ago
February 19, 2023
1 reply
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I manually entered margin interest for deduction however I noticed on Form 4952 Part III Line 7 --

Disallowed investment interest expense to be carried forward to 2023 has the total margin interest I expected a deduction but it appears it does not qualify for deduction this year. I did have wash sale losses deferred for 2022 is this related?

AbrahamT

Level 8

Margin interest expense is only allowed upto net investment income. In other words, if your net investment income is 1,000 and your margin interest expense is 4,000, you may deduct only 1,000 against your net investment income. The rest of the margin interest is carried forward to 2023. Deferred wash sale losses are something completed different. Because wash sales are disallowed, you may defer the amount of the investor's loss by adding it to the cost basis until a later date when the replacement ivestment is eventually sold off.

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techie353Author

Level 4

If my wash sales are disallowed can I still use margin interest as a deduction? It would appear TurboTax automatically did not allow deduction.

GeorgeM777

Level 11

No, not unless you itemize your deductions. If you itemize your deductions, you may be able to claim a deduction for your investment interest expenses. Investment interest expense is the interest paid on money borrowed to purchase taxable investments. As explained by @AbrahamT, the amount that you can deduct is capped at your net taxable investment income for the year. If you have leftover investment expense that cannot be deducted in tax year 2022, then that leftover amount gets carried forward to the next year and potentially can be used to reduce taxes in the future.

@techie353

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