Investment Interest

[MIKEMCD77]

In my case, I can deduct the interest paid on my Equity-Line as “investment interest” on schedule A, line 9. However, please confirm whether the following discussion seems valid:

It would be great if I could simply enter that amount there on schedule A. However, according page A-9 of “Instructions for Schedule A,” it appears that instead of entering the amount on line 9, I MUST enter it on Form 4952. (That is because I had NO “investment income [nor dividends/interest]” during 2018, and therefore my interest expense is NOT “less than my investment income.”)

Unfortunately, since I must enter it on Form 4952 (and since I had no “investment income”), then Form 4952 will result in my entire amount of investment interest as being treated as “disallowed investment interest” that must be carried forward to 2019.

 

[davew9128]

Your deduction is limited to your net investment income. So if you follow the trail on the forms and thats the result you're getting, it is correct.

 

[MIKEMCD77]

Thanks! So, you are saying that since I didn't have any net investment income during 2018, then I cannot claim any Investment Interest on schedule A, line 9?

 

[adjusterjack]

That's right. According to the instructions for Form 4952 you complete that form first to determine the amount that goes on Line 9 of Schedule A.

If that amount is -0- then you have no interest deduction for 2018.

See the Form 4952 instructions:

https://www.irs.gov/pub/irs-pdf/f4952.pdf
What is the investment?

 

[MIKEMCD77]

It was Equity Line money used for investments in the stock market that resulted in no net income for 2018.

 

[adjusterjack]

You made only purchases in 2018 and no sales? If that's the case then you wouldn't recognize any income (or loss) until the year you sell.

 

[MIKEMCD77]

I sold the investments in 2018, but it was a loss. So I'll have to treat it as “disallowed investment interest” on form 4952, and carry it forward to 2019.

 

[adjusterjack]

I sold the investments in 2018, but it was a loss.

Which is a good argument for NEVER borrowing money to play the stock market. You lose twice. Once when you sell the stock at a loss and again when you pay interest on a loan that still exists long after you sold the stock.

So I'll have to treat it as “disallowed investment interest” on form 4952, and carry it forward to 2019.

But if you have no investment income in 2019 you still won't get the deduction.

However, it occurs to me that you might look into the capital loss deduction. I think you can deduct capital losses against any income, up to a limit. Check it out. You might be able to salvage something.

 

[Taxing Matters]

Which is a good argument for NEVER borrowing money to play the stock market. You lose twice. Once when you sell the stock at a loss and again when you pay interest on a loan that still exists long after you sold the stock.

On the other hand, borrowing to buy stocks can result in a much larger gain if the investments go up. You just have to understand the increased risk you take in doing it and be comfortable with that risk. I've bought stock on margin and done well with that, but then I have been fortunate not to have picked very many losers.