If you are able itemize your deductions for the year, you will be able to claim the investment interest expense. This interest expense is reported in the following manner.
- Federal
- Deductions and Credits
- Retirement and Investments
- Investment Interest Expenses
If you are able to claim, the amount claim this year cannot exceed the amount of your investment distributions for the year. If the expenses are greater than your investment, the excess amount gets carried forward to the next year and potentially can be used to reduce taxes in the future.
The $3K reference you made is something different and relates to an investment sale. Your 1099B, reports proceeds of sale and cost basis. There are other factors that play into this such as date you bought the security and the date sold. When all of this is combined, you will either receive a capital gain or capital loss. If the capital loss is greater than $3,000, the excess is a carryover. This is treated a little differently because investment expenses are not accounted in in determining capital gain or loss.
The distinction may seem a little hazy but you cannot factor in investment expenses when you report a capital gains sale. These expenses are only deductible separately as an itemized deduction that is available if you have other itemized deductions to report such as large medical expenses, home mortgage interest, large charitable contributions, etc.
If you don't have enough expenses to itemize, you will default to a standard deduction, which is higher than your standard deduction. If this is the case, you will be unable to claim your investment expense for this year.
let us know if this helps.
@DGusman
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