How can I show my margin loan isn't for my house?

July 14, 2003

Subject:  Is there a wash rule for fund usage on a margin account?
Date:  Mon, 23 Jun 2003
From:  Kevin

I understand that using a margin loan to purchase a home would result in interest that is not tax deductible. Instead, I would like to liquidate some stocks to purchase a new home. Is there a certain amount of time that I need to wait before taking out a future margin loan (to purchase stocks) so that the IRS will not deem the margin loan to actually have been for the house?



Date:  Mon, 7 Jul 2003

Hello Kevin,

No. Complex tracing rules apply to margin loans. As long as the loan proceeds can be traced to investments that aren't tax exempt (and those investments aren't then sold and the proceeds used for personal purposes), the interest expense should qualify as investment interest expense. Note it will be more difficult to claim investment interest expense under the new tax law. Dividends taxed at the 15% capital gains rate are not investment income.

Good luck!
Mike Gray

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