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Brokerage line of Credit

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    Brokerage line of Credit

    Client established line of credit with brokerage with his securities as collateral and used the money to purchase rental property in 2015. Had to fix up property and didn't rent property until 2016. I was planning on taking the real estate taxes and interest on Schedule A for 2015 as the property was not available to rent until 2016 but not sure how to handle the interest. The total interest is approx. $10,000 but if I treat it as margin interest which I'm thinking is correct, the interest is limited to approx. $2,000. I talked to the brokerage and he did set up a separate account with this line of credit and has paid down a substantial part of the loan in 2015 but because his securities back up the loan, it is considered margin interest...any thoughts..much appreciated..

    #2
    Another $8000?

    If margin interest is only $2000, and total interest is $10,000, then where did the other $8000 come from? Is there another loan other than the brokerage margin interest?

    Doesn't directly answer your question, but I think important to consider in the total picture...

    Optimum deduction would be on Sch E if qualified, and on Form 4952 if not. Form 4952 allows for a rollforward if disallowed by virtue of not having enough investment income. Remember, for anything other than choosing Mortgage Interest on Sch A, the USE of the money dictates, and not the collateral.

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