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user314
Level 3

Is Interest on forgivable loan, that is used for investment, tax deductible?

My employer paid me a bonus structured as a 10 year forgivable loan.  I am a W-2 employee.  I have invested the loan/bonus into the stock market.  Is the interest on the loan tax deductible under IRS publication 550 “investment interest and expenses”?  If so, how much of that interest can I deduct and where in TurboTax would I enter it?  Thank you.

4 Replies
macuser_22
Level 15

Is Interest on forgivable loan, that is used for investment, tax deductible?

If you are paying interest on a loan used for investment income then it might be deductible if you can itemized deductions (your total itemized deductions are more then the standard deduction.)

 

You can search topics for " investment interest expense" which will produce a 4952 form and put the allowable deduction on Schedule A line 9.


Only if all itemized deductions exceed the standard deduction will it be of benefit.

2020 standard deductions

$12,400 Single
$18,650 Head of Household
$24,800 Married Jointly

Add an additional $1,300 for over age 65 or blind
This amount increases to $1,650 if the taxpayer is also unmarried.



 

 

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Mike9241
Level 15

Is Interest on forgivable loan, that is used for investment, tax deductible?

the interest would be reported as investment interest expense on form 4952.  investment interest expense is only deductible to the extent of investment income - excess of net short-term capital gains over net long-term capital losses, taxable interest income, net royalty (schedule E) income and non-qualified dividends. you can make an election to include qualified dividends and net long-term capital gains. doing so in effect recharacterizes those items as non-qualified dividends.   any excess investment interest may be carried forward.

TT automatically calculates the deductible amount and through manual input allows you to use L-T capital gains and qualified dividends 

 

 

user314
Level 3

Is Interest on forgivable loan, that is used for investment, tax deductible?

Got it, thank you.  I already itemize so I think I'll give this a go.

user314
Level 3

Is Interest on forgivable loan, that is used for investment, tax deductible?

Thank you for the detailed reply.  I appreciate it.

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