Margin Interest and Short term capital gain

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  • Questionguy101
    Senior Member
    • Jan 2007
    • 423

    #1

    Margin Interest and Short term capital gain

    Can margin interest expense (investment interest expense) be used to offset short-term capital gain?
  • Snaggletooth
    Senior Member
    • Jun 2005
    • 3314

    #2
    Technically, no, but....

    As a general rule, no, although this can happen if taxpayer can get the benefit of investment interest on Schedule A.

    Investment interest (Form 4952) can be deducted on Schedule A without phase-out.
    For there to be any benefit, the taxpayer must itemize. Investment interest is also
    limited by investment income, however if any such interest is non-deductible by virtue
    of this limitation, it can be rolled forward.

    Regards, Ron J.

    Comment

    • Questionguy101
      Senior Member
      • Jan 2007
      • 423

      #3
      Let me clarify

      Originally posted by Snaggletooth
      As a general rule, no, although this can happen if taxpayer can get the benefit of investment interest on Schedule A.

      Investment interest (Form 4952) can be deducted on Schedule A without phase-out.
      For there to be any benefit, the taxpayer must itemize. Investment interest is also
      limited by investment income, however if any such interest is non-deductible by virtue
      of this limitation, it can be rolled forward.

      Regards, Ron J.
      Sorry, I might not have asked my question clear enough. Let me use an example:

      Margin interest expense in 2006: $2,000.

      Bank interest income and divident income in 2006: $300.

      Short term capital gain in 2006: $1,000.

      Can he claim $1,300 on line 13 of Schedule A in 2006 as investment interest or only $300?

      Comment

      • Questionguy101
        Senior Member
        • Jan 2007
        • 423

        #4
        Any further help?

        Any further help?

        Comment

        • Snaggletooth
          Senior Member
          • Jun 2005
          • 3314

          #5
          $1300

          No other facts being given, it looks like the deduction is limited to $1300, as any capital gain is considered "investment income."

          And $1000 is rolled forward to 2007.

          Regards, Snag

          Comment

          • Davc
            Senior Member
            • Dec 2006
            • 1088

            #6
            You may elect to treat capital gain as investment income on form 4952 on a timely filed return.

            Comment

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