How can I show my margin loan isn't for my house?

July 14, 2003

Subject:  Is there a wash rule for fund usage on a margin account?
Date:  Mon, 23 Jun 2003
From:  Kevin

I understand that using a margin loan to purchase a home would result in interest that is not tax deductible. Instead, I would like to liquidate some stocks to purchase a new home. Is there a certain amount of time that I need to wait before taking out a future margin loan (to purchase stocks) so that the IRS will not deem the margin loan to actually have been for the house?

Sincerely,
Kevin

Answer

Date:  Mon, 7 Jul 2003

Hello Kevin,

No. Complex tracing rules apply to margin loans. As long as the loan proceeds can be traced to investments that aren't tax exempt (and those investments aren't then sold and the proceeds used for personal purposes), the interest expense should qualify as investment interest expense. Note it will be more difficult to claim investment interest expense under the new tax law. Dividends taxed at the 15% capital gains rate are not investment income.

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.



Michael Gray, CPA
2482 Wooding Ct.
San Jose, CA 95128
(408) 918-3162
FAX: (408) 938-0610
Hours: 8am - 5pm PDT Monday - Friday


Connect on LinkedIn
Our Blog
© 2024

Subscribe to Michael Gray, CPA's
Tax & Business Insight


We respect your email privacy