Finance Maxxing
Borrowing & Leverage
Investment Interest Expense
Deductible against net investment income; requires itemizing.
Interest on money borrowed to purchase or hold investments is deductible as an itemized deduction, limited to your net investment income.
Net Investment Income (for this purpose)
| Included | Excluded |
|---|---|
| Taxable interest | Tax-exempt interest |
| Non-qualified dividends | Qualified dividends* |
| Short-term capital gains | Long-term capital gains* |
| Royalties | Wages |
*You can elect to include qualified dividends and LTCG, but they then lose preferential rates.
Key Rules
- Requires itemizing (standard deduction taxpayers get no benefit)
- Excess investment interest expense carries forward indefinitely
- Does not apply to §1256 box spread costs (those are Schedule D losses)
- Most commonly applies to margin loan interest
Example
| Amount | |
|---|---|
| Margin interest paid | $15,000 |
| Interest income | $5,000 |
| Non-qualified dividends | $3,000 |
| STCG | $2,000 |
| Net investment income | $10,000 |
| Deductible this year | $10,000 |
| Carried forward | $5,000 |
Sources
Related Terms
More in Borrowing & Leverage
Margin Loan
Borrow against brokerage holdings; interest may be deductible.
§1256 Contracts
60/40 tax treatment — 60% LTCG, 40% STCG regardless of holding period.
Box Spread
Synthetic loan using options at near-Treasury rates.
HELOC (Home Equity Line of Credit)
Borrow against home equity; interest deductible if used for home improvement.
Buy-Borrow-Die Strategy
Borrow against appreciated assets to avoid capital gains; basis steps up at death.