My margin Interest $30,000.0 but my Dividend income was $20,000.Can I deduct Entire amount of Margin Interest of $30,000.0 from my income or not, Itemized deduction

[nrco1961]

Margin Interest Charged by My Broker is $30,000. My dividend income is $20,000. I am filing Itemized deduction. Can I deduct entire $30,000 Interest Expense or not.

Please advise

[suzyquzy · Accepted solution]

The deduction for investment (margin) interest is limited to the amount of investment income.

[nrco1961]

The unused portion of Interest Expense ($ 30000-20000) $10000, has to carried over. It must be noted/kept  by Turbo Tax. Where will it be recorded in my tax forms. Thanks for UR response

[LisaBr]

Yes, you can deduct the interest expense from your margin account.  If you have purchased taxable securities as investment interest, and you have paid the margin interest in 2017.

You can enter Investment Interest expense as follows:

1. Go to Federal Taxes.
2. Select Deductions & Credits
3. Under Retirement and Investments, choose Investment Interest Expenses.
   

You can only deduct the portion that was used for investment purposes only. If you use any of the funds for personal such as home-improvements, down payment on car, etc. you may not deduct the interest expense allocated for personal use.

The following link is very helpful regarding deducting this expense:

https://www.irs.gov/pub/irs-pdf/p550.pdf

[Russ18]

Hi, Can someone please help. For some reason my investment interest expense just keeps getting bigger and bigger and instead of offsetting the Dividend and Interest income for the year keeps being Carried over to the next year. Turbotax message is that unfortunately "you do not haveenough itemized deductions... Your investment interest expense of $40,810 will be carried forward to 2024"... Why? Could it be that I didn't itemize them? I thought I did ...followed TT's instructions, entered the correct amounts into margin expense, do not see any other options... Funny that with Interest Income and Dividend Income all the boxes get populated directly from my brokerage and never get "carried forward" anywhere and taxed right away. Margin interest expense needs to be entered manually and then it tells me it can't be applied this year? What am I missing?

[IsabellaG]

Your Investment Interest expense deduction is limited each year to your net investment income. And while you can carry over unused investment interest expense, you run into the same limitation in every carryover year, where you can only claim the expense up to that year's income.

Your message is  saying that you don't have enough total Itemized Deductions to Itemize, so you are instead claiming the Standard Deduction, because it's larger than whatever you entered for your Itemized Deductions, including the allowable deduction for investment interest expense.

See this article about Investment Interest Expense.

[fanfare]

With 20,000 of dividends that's more than the standard deduction for a Single taxpayer.

You must be itemizing.

Your dividends must be qualified dividends.

You must be electing this deduction. See Form 4592  4952  Line 4g

@Russ18 

[Russ18]

Thank you for your reply! 

Unfortunately I am still a bit confused. The message on my TT didn't mention anything about claiming the Standard deduction instead, like it usually does in those cases. I felt that since I had an Interest of 7.5K and then received Dividends of about 26K, I should have been able to offset that entirely with my Margin Expenses..

So, the invest Income is about 33.5K minus 16K (as those are Qualified Dividends that go towards Cap Gains, and not Income), so the Investment income is around 17K, but my margin expense together with the Carryover from previous years is 57K. I was hoping to nill all of the Investment Income and for the balance of Expense to carry over to 2024... BTW, I am filing Married filing Jointly. If this explanation clears anything up, please advise! Thank you 

[Russ18]

Thank you!

I am Married filing Jointly... You said I must be itemizing - how do I do that? I thought TT walked me through that and me entering Margin expense and other info is itemizing... No?

Here's my follow up response to a different post.

Thank you for your reply! 

Unfortunately I am still a bit confused. The message on my TT didn't mention anything about claiming the Standard deduction instead, like it usually does in those cases. I felt that since I had an Interest of 7.5K and then received Dividends of about 26K, I should have been able to offset that entirely with my Margin Expenses..

So, the invest Income is about 33.5K minus 16K (as those are Qualified Dividends that go towards Cap Gains, and not Income), so the Investment income is around 17K, but my margin expense together with the Carryover from previous years is 57K. I was hoping to nill all of the Investment Income and for the balance of Expense to carry over to 2024... BTW, I am filing Married filing Jointly. If this explanation clears anything up, please advise! Thank you 

[Russ18]

4592 or 4952?

"The IRS allows certain taxpayers to take a tax deduction for the interest expense on some loans using Form 4952. However, the tax ramifications of investment interest can be complicated, as the IRS only allows a deduction for certain types of investment interest. Additionally, the Alternative Minimum Tax (AMT) could completely disallow the use of your investment interest deduction."

"allows certain taxpayers..... allows for certain types of investment.... Additionally AMT..." - Is there a rational explanation for this pick and choose type of policy? I mean, there should be, it's just very complicated?

[Russ18]

One last thing, if I may...

On the page for Make a Capital Gain Election, if I choose to elect $16,254 of my qualified dividends to Cap Gains, then it tells me "Congrats, you qualify for 35K deduction!" but at the same time my Fed Tax Due jumps a $1000 immediately. Do I really need that deduction (which I thought are to reduce the taxes due)  if I have to pay more in taxes? 

[fanfare]

You have to search for the sweet spot where your tax is minimized.

Try reducing the amount on 4g by 2000  increments and see if your tax goes down.

If there's no tax benefit, don't do that.

Maybe someday in fhe future it will be in your favor.

@Russ18 

[fanfare]

I misspoke above about Line 4g, since there are other lines involved in the calculation.

That make filling out the form tricky.

You may want to use Forms Mode.

The actual schedule A amount available is on 4952 Line 8.

4g is the amount of dividends and gains you can adjust.

@Russ18 

[BreakFinder]

@Russ18  Did you get to the bottom of this?

I'm in the same boat, have accumulated over $24k in margin interest 

Thanks

[DaveF1006]

Yes, when you elect to treat your qualified dividends as capital gains, it might push you into a higher tax bracket or affect other parts of your tax return. 

The $35,000 deduction might be beneficial in some cases, but if it results in a higher overall tax liability, it might not be worth it. The decision is up to you.

@Russ18