Investment interest Expense Deduction

[jasdlm]

Taxpayer borrowed on margin to purchase a primary residence. I think the (substantial) interest is not deductible, even though the investment income is sufficient, because it wasn't used to purchase a taxable investment, but I want to make sure I'm right. I'd sure like to deduct the interest.

Thanks for the help.

d

[kcjenkins]

She is screwed because of the way she did it. You are right.

[joanmcq]

Now that's one of the dumbest client moves I've heard. Especially ones that have the financial resources to buy a primary residence on margin.

[Terry D EA]

Wow!

[Guest Taxed]

Taxpayer can cut his losses going forward by getting a mortgage pronto and paying back that margin loan. What is the interest rate on that BTW?

One year one of my clients put $25,000 on her Amex to close on her house. Carried that for 1 yr!!

[taxxcpa]

If they have that much in marginable securities, they should sell enough of them and repay the margin loan.

[jainen]

>>one of the dumbest client moves I've heard<<

I will stand up for this client! We don't know the actual reasons, but there are many good ones. First, margin interest is pretty cheap compared to unsecured debt like a credit card. It is also fast and easy. Not every borrower qualifies for a good mortgage; not every property qualifies for a good mortgage. With real estate currently at the bottom of the market, opportunity cost can far exceed the margin cost. That may be hard to quantify, but buying a primary residence is always very subjective.

Missing a tax deduction fits in nicely with such analysis. In my opinion, tax consequences should always be a lesser priority.