Limits apply if you borrow to buy treasury bills or market discount bonds. You cannot deduct prepaid interest you pay in the current tax year that is not actually due until future tax years. You cannot deduct interest that is added to the amount you owe, such as life insurance loan interest added to the loan principal. You can deduct only interest that you actually pay. 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. You deduct it from next year's interest income, and then carry forward any remaining amounts to future years. You can deduct any interest expense that is greater than your net investment income. Investment expenses also include depreciation and depletion of assets that produce investment income (such as a computer), and investment expenses reported to you on a Schedule K-1 from a partnership or an S corporation. Examples of investment expenses include safe deposit box fees, investment advisory fees, and the cost of investment publications, such as magazine subscriptions. Your net investment income is your investment income minus investment expenses (other than interest expense). You can deduct interest expense only up to the amount of your net investment income. You must itemize your deductions on Schedule A. You must be an investor who borrows money to buy investments, and receives interest, dividends, capital gains, royalties, or other investment income. If you have investment interest expense, you can deduct it up to the amount of your net investment income.ĭo I qualify for the investment interest expense deduction? Examples include margin interest your broker charges you on loans to buy stocks, and interest you pay on money you borrowed to buy raw land for speculation. If you borrow money to finance investments, the interest you pay is considered investment interest. What is the investment interest expense deduction? But this is a long and detailed answer, so please read the information carefully to find the answer applicable to your specific circumstances.
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