Maybe change loan interest paid from non-deductible to deductible

joyfulguyJuly 12, 2009

Many people choose to purchase a reasonably new, if not a new, vehicle and, lacking the money to pay cash, borrow to cover part of the purchase.

Some such purchasers own their own business to conduct which they need the vehicle, which in many cases makes at least part of the interest cost deductible ... but for most of us, that opportunity is not available, so the interest that we pay on such a loan is not deductible.

On the other hand, many persons who choose to do some investing, save some money over a period of time, then buy some mutual funds, stocks or other investments, paying for them with cash.

If they choose to borrow funds in order to make such investments, in many cases the interest paid becomes deductible when one prepares one's income tax.

This is not true in Canada if one puts those investments into one's personal tax-deferred retirement fund, or the new Tax-Free Savings Account.

Please check with your local advisors who know the tax implications in your jurisdiction(s) before you take action, trusting that this info is true in your situation.

Good wishes for taking tax considerations into account when you consider the management of your income and assets.

ole joyful

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jlhug

Joyful, in the USA a taxpayer can claim investment interest at part of Schedule A itemized deductions up to the amount of net taxble investment income. The investment interest expense cannot be claimed for investments that produce non-taxable income. Investment income, for this purpose, generally does not include qualified dividends and capital gains that are taxed at the capital gains rate. A taxpayer can forego the capital gains treatment of qualified dividends and capital gains on Form 4952 Investment Interest Expense Deduction enabling him to claim a larger amount of investment interest expense.

IRS Pub 550 has details starting on page 31.

Here is a link that might be useful: Pub 550 Investment Income and Expenses

    Bookmark   July 13, 2009 at 8:21AM
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