Schedule C for personal investing

[BraunLA1]

I took a second mortgage and have invested the proceeds in a number of investments - some small and some larger.  There is a mix of long and short maturities and some cash is invested in money market funds.  I continue to spend considerable time monitoring the investments and investigating new investment opportunities.  There is a mix of K-1 and 1099-INT investments.  There is a semi-liquid market for some (but not all) of the K-1 investments so I can sell some of them if I want to do so.

Are these facts supportive of me tracking the income/expense of these activities as a Schedule C business?    Thanks!

[fanfare]

No.

You are a fairly active investor.

Report your gains and losses on Schedule D.

@BraunLA1 

[BraunLA1]

Thank you.  To confirm, is it also appropriate to include the Interest Expense from the home equity loan and interest received on 1099-INT on Schedule D?

[fanfare]

Home equity interest not used for your home purchase or improvement is not deductible.

BUT

see Form 4952.

Interest goes on Schedule B.

@BraunLA1 

[Mike9241]

the IRS considers you an investor and investment expenses except for investment interest expense are not deductible for federal income tax purposes. under the rules for home mortgage interest and for tracing the use of the loan proceeds the interest may not be deductible as mortgage interest but as investment interest -schedule A form 4952 which is limited to investment income.

Per IRS findings, only second mortgage interest paid on acquisition indebtedness – i.e. a loan used to acquire, build, or substantially improve a main or second home – is deductible. This acquisition indebtedness must apply to the specific home that you have used to secure the second mortgage if you wish for any sums to become eligible for interest deductions.

here's what the IRS says about trader (schedule c for expenses schedule D for capital gains/losses unless the trader makes a valid 475(f) election then the capital gains/losses are treated as ordinary income and reported on form 4797) vs, investor (expenses other than investment interest are not deductible)

Traders
Special rules apply if you're a trader in securities, in the business of buying and selling securities for your own account. The law considers this to be a business, even though a trader doesn't maintain an inventory and doesn't have customers. To be engaged in business as a trader in securities, you must meet all the following conditions:
You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation;
Your activity must be substantial; and
You must carry on the activity with continuity and regularity.
The following facts and circumstances should be considered in determining if your activity is a securities trading business:
Typical holding periods for securities bought and sold;
The frequency and dollar amount of your trades during the year;
The extent to which you pursue the activity to produce income for a livelihood; and
The amount of time you devote to the activity.
If the nature of your trading activities doesn't qualify as a business, you're considered an investor and not a trader. It doesn't matter whether you call yourself a trader or a day trader, you're an investor. A taxpayer may be a trader in some securities and may hold other securities for investment. The special rules for traders don't apply to those securities held for investment. A trader must keep detailed records to distinguish the securities held for investment from the securities in the trading business. The securities held for investment must be identified as such in the trader's records on the day he or she acquires them (for example, by holding them in a separate brokerage account).

[Opus 17]

In general, if you borrow money to buy investments, that interest is deductible against your investment income on form 4952.  There are special rules when you borrow against your home.  Briefly, you have two choices:

A. Consider the interest as a mortgage secured by the home.  In that case, it is only deductible on schedule A, subject to the usual limits on mortgage interest deductions (including the $750,000 cap and the rule about acquisition debt).

B. Consider the interest as "not secured" by your home.  In that case, you can consider it to be interest used to purchase investments which is deductible against investment income on form 4952.  However, by declaring the interest as "not secured" by the home, you give up forever the ability to consider it a deductible mortgage on schedule A, even if you later change your mind. 

Also, for any loan you take to buy investments, the interest must be traceable to the investment.  For example, if you take out and HELOC and use some of the proceeds to buy an investment and some to take a vacation or remodel your home, it becomes difficult to trace each dollar of interest to either the investment or the other personal purposes.  

I can't comment on how much trading you must do to qualify to file on schedule C.  I know it's possible, but uncommon.