Discussion:Interest on Non-purpose Loan against Securities deductible?
From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> Interest on Non-purpose Loan against Securities deductible?
| 4 March 2007 | |
| I have a client who is taking a loan against his stock, primarily to build a new home. It is a non-purpose loan against his stock holding. Does anyone know if the loan proceeds used to pay for building the new home are deductible? The interest is not really investment interest, nor is it secured by his residence, but the proceeds are being used to build a new residence. Thanks for any and all input!
Bill Herr | |
Mtmckeecpa (talk|edits) said: | 4 March 2007 |
| Bill,
I don't see an investment interest deduction or acquistion or home equity indebtness interest expense. Proceeds were not used to acquire stocks, bonds, etc...so investment interest is out. Acquistion & home equity is out b/c debt not secured by residence. Seems like TP is out of luck. Client can't get a construction loan? | |
| 4 March 2007 | |
| I agree, nondeductible. Construction period interest is deductible as residential interest for two years prior to occupancy. So after the t/p gets far enough along to see that the remaining construction period will finish within two years, getting a construction loan as Mtmckee has suggested is a good idea. | |
| 4 March 2007 | |
| Isn't it paid or incurred to carry the investment securities? | |
Death&Taxes (talk|edits) said: | 4 March 2007 |
| We've been living with these rules 20 years now. When they came out, a common strategy for buying a new car went like this: pay cash, take the title to the bank or broker, borrow on it and buy a CD or stock etc. That was investment interest; if you did it the other way around, tracing rules made the interest personal and not deductible. I've not seen anything to rebut this yet. | |
Mtmckeecpa (talk|edits) said: | 7 March 2007 |
| Just happen to run across this reg on another issue, basically say the same as D&T's example.
Temp Reg. 1.163-8T(c)(1)] | |
| 29 February 2008 | |
| However thats if it's a loan from a bank correct? If the securities are placed with a broker and a margin account is opened. isnt it true that the customer can withdrsaw funds (fed wire) and then write off margin interest? | |
Death&Taxes (talk|edits) said: | 29 February 2008 |
| Only if he buys more securities or CDs at another brokerage, or puts the money into a non-margin account at the same brokerage. | |
| 29 February 2008 | |
| If thats the case then what about this...... It's common practice for a Margin account holder at a brokerage firm to have an ATM Debit card or check book linked to their brokerage account. Having said this, if the customer were to purchase a TV at an electronic store and the debit to come from SMA or House Excess then that would be non purpose? i dont know of firms filing these as non purpose? | |
To join in on this discussion, you must first
log in.
