Brokerage loan used to purchase 2nd home

[mostgrateful1]

Domiciled at primary home in NJ. Paying interest on a brokerage margin loan used to purchase second home in Florida. How do I deduct the interest paid on the margin loan used for second home purchase using TT 2023?

[DoninGA]

If you borrow for business or personal purposes as well as investment, you can deduct only the interest expense on the part borrowed for investment purposes.

To enter Investment Interest expenses -

Click on Federal Taxes (Personal using Home and Business)
Click on Deductions and Credits
Click on I'll choose what I work on (if shown)
Scroll down to Retirement and Investments
On Investment Interest Expenses, click the start or update button

[mostgrateful1]

Thank you.

[mostgrateful1]

So, the interest paid on the portion used to purchase a second home is treated like investment interest of is the some other way to report it?

[DoninGA]

If the second home is only being used for personal purposes, the margin loan interest you are paying is not deductible.  The home would have to be an investment property, not a personal property, for the interest paid on the margin loan to be deductible.

[mostgrateful1]

Is there some other way to treat the interest? If it were a mortgage on the second homecwould that be deductible?

[DoninGA]

If you used the investment loan to purchase a mortgage on the second home, the interest paid on the mortgage would be deductible as an itemized deduction on Schedule A.  However, the margin loan interest would still not be deductible.

If you purchased the residential property as an investment, such as a rental, with no personal use, then the margin interest would be deductible.  And if you had a mortgage on the rental property, the mortgage interest would be an expense you could enter on Schedule E.

[rjs]

---

@mostgrateful1 wrote:

Is there some other way to treat the interest? If it were a mortgage on the second homecwould that be deductible?

---

A margin loan is not a mortgage. Mortgage interest is only deductible if the mortgage is secured by your home and is recorded as a mortgage by the appropriate local government agency. You cannot treat interest on a margin loan as if it were mortgage interest. There is no other way to treat the margin loan interest.

[Opus 17]

You can deduct mortgage interest on your main home where you live, plus one second home, up to a combined balance of $750,000.  But to qualify as a mortgage, the loan must be secured by the home, so a brokerage loan doesn’t count as a deductible mortgage.  And the brokerage loan interest is not deductible as investment interest because it it being used for a personal use.  (Even as an investment, the interest would only be deductible against income.  If the investment doesn’t produce taxable income, the interest isn’t deductible.)

So there are no tax benefits available for the interest in this loan.