Ron Peterson <ron@[EMAIL PROTECTED]
> writes:
> > That's the whole point of the law: personal interest to buy a car is
not
> > deductible. Interest on money borrowed *directly* for investment
> > purposes is.
>
> Since interest is fungible, it's a silly rule. But, my broker says to
> use such loans as temporary ways to manage investments.
It may be silly, but it's the law, and the interest-tracing rules apply.
For example:
(a) You have $30,000 in a checking account. You buy $30,000 in stock,
send in $15,000 in partial payment, and use the other $15,000 to
buy a car. You end up with $0 in checking, $30,000 in stock,
a $15,000 margin loan, and a car. The interest is deductible.
(b) You have $30,000 in a checking account. You buy $30,000 in stock,
send in full payment of $30,000. Then you tell the broker to
send you $15,000 (you don't sell anything) and use it to buy a
car. You end up with $0 in checking, $30,000 in stock,
a $15,000 margin loan, and a car. The interest is NOT deductible.
(I posited this scenario in misc.taxes.moderated several years ago,
and the consensus was as described above -- even though the outcomes
are identical, the interest-tracing rules and the sequencing of events
makes the first scenario deductible but the second scenario
non-deductible).
--
Rich Carreiro rlc-news@[EMAIL PROTECTED]
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