The subject of deductions is complicated indeed. (I’ll bet you’ve discovered that for yourself a long time ago!)
That’s why, in the current issue of the Tax Reduction Letter we’ll zero in on just one aspect of tax deduction law…
Investment interest deductions.
When it comes to tax deductions for credit card and loan interest, the tax code doesn’t help you out much. But you can deduct the investment interest of your net investment income.
As you can imagine, there’s a lot more to say about this complex subject. That’s why we’ll cover everything in easy-to-read language.
The bottom line? You’ll learn how to save a bundle when you read my new article titled Tax Tips: Three Ways to Maximize Your Investment Interest Deductions.
Three ways our fact-filled article can help you:
- Take advantage of “tracing rules.” The tax code’s so-called tracing rules let you allocate your interest expense based on how you use the proceeds of your loan. With tracing, your investment interest can come from four sources.
- Home equity line of credit
- Credit card
- Unsecured loan
- Loan secured against personal property
All will be explained when you read the full article.
- Make the investment interest election. Remember, you can deduct investment interest to the extent that you have net investment income. What if you come up short on the investment income part? You have two choices:
- Carry over to next year the investment interest that’s not deductible this year.
- Make an election to include qualified dividend income, and net long-term capital gains as investment income to enable some or all of the interest deduction.
You’ll get the whole story when you read the full article.
- Take advantage of the above-the-line deduction. If you buy a partnership interest or S corporation stock with a loan, you can usually deduct the interest on that loan above-the-line directly on your Schedule E.
To deduct 100% of the interest as an above-the-line deduction, you need to meet three requirements:
-
- You have to materially participate in the entity’s business operations
- The entity must use its assets solely for conducting a trade or business activity, and not for passive or portfolio activities
- The entity must not make debt-financed distributions to partners or shareholders.
You’ll get full details when you read the full article
Three Ways to Maximize Your Investment Interest Deductions