Margin Interest and Short term capital gain

[Questionguy101]

Can margin interest expense (investment interest expense) be used to offset short-term capital gain?

[Snaggletooth]

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.

[Questionguy101]

Let me clarify

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?

[Questionguy101]

Any further help?

Any further help?

[Snaggletooth]

$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

[Davc]

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