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Posted by Tony on April 14, 2006, 4:04 am
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I went to H&R Block to file my tax return.
My investment (short term) income was higher than the
interest I payed to Ameritrade broikerage for margin
interest. I expected that margin interest (used only to
finance short term stock trades) can be deducted from my
investment income.
However, H&R Block accountant (?!) told me that, since my
margin interest payment is lower than $5,000 deductible
allowed by the Government, nothing would be accomplished
(i.e. I won't pay less taxes) by deducting it.
In short, if my short term trades investment income was
$2,000 and margin interest was $1,000, according to H&R
Block person, I have to report $2,000 as investment income
and I can simply forget about $1,000 margin interest payed
to the brokerage on that income (it can't be deducted)
However, everything I read on the Web appears to contradict
this.
Now I am completely confused and seeking explanations and
help on this issue. Why are broker's comissioins deductible
but margin interest is not?
Thanks for any clarification,
Tony
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Posted by Phil Marti on April 15, 2006, 2:08 am
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> My investment (short term) income was higher than the
> interest I payed to Ameritrade broikerage for margin
> interest. I expected that margin interest (used only to
> finance short term stock trades) can be deducted from my
> investment income.
You had a false expectation. The fact that you had
sufficient investment income means that your investment
interest is *deductible*, but it's not deductible directly
against investment income. It's an itemized deduction on
Schedule A.
> However, H&R Block accountant (?!) told me that, since my
> margin interest payment is lower than $5,000 deductible
> allowed by the Government, nothing would be accomplished
> (i.e. I won't pay less taxes) by deducting it.
I suspect a little miscommunication here. The 2005 standard
deduction for a Single filer is $5,000. If your investment
interest plus other Schedule A items isn't at least $5,000,
there's no tax benefit to the interest.
<snip>
> Why are broker's comissioins deductible
> but margin interest is not?
Because Congress is the mommy, and Congress says so.
--
Phil Marti
Clarksburg, MD
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Rich Carreiro on April 15, 2006, 2:08 am
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> My investment (short term) income was higher than the
> interest I payed to Ameritrade broikerage for margin
> interest. I expected that margin interest (used only to
> finance short term stock trades) can be deducted from my
> investment income.
>
> However, H&R Block accountant (?!) told me that, since my
> margin interest payment is lower than $5,000 deductible
> allowed by the Government, nothing would be accomplished
> (i.e. I won't pay less taxes) by deducting it.
That sounds correct. You get the "standard deduction" just
for being alive. If your total actual itemized deductions
(state&local income tax, property tax, charity, mortgage
interest, allowable investment interest, etc.) is less than
the standard deduction, there's no point in taking the
actual deduction since you'll get a better tax result by
taking the standard deduction.
And, as stated, the investment interest deduction is
a Schedule A itemized deduction. The only way to take
it is to itemize. But if itemized deductions are less
than the standard deduction, itemizing makes you pay
more taxes.
So the odds are that the Block guy is correct.
> In short, if my short term trades investment income was
> $2,000 and margin interest was $1,000, according to H&R
> Block person, I have to report $2,000 as investment income
> and I can simply forget about $1,000 margin interest payed
> to the brokerage on that income (it can't be deducted)
That's correct if you don't itemize.
> However, everything I read on the Web appears to contradict
> this.
Then you've misunderstood what you've read.
> Now I am completely confused and seeking explanations and
> help on this issue.
See above.
> Why are broker's comissioins deductible but margin interest is not?
(1) Brokerage commissions aren't "deductible" per se. They
are considered part of the cost of buying and selling
securities and so become part of basis, directly
affecting the computed capital gain or loss.
(2) That's how Congress wrote the law.
--
Rich Carreiro rlcarr@animato.arlington.ma.us
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Don Priebe on April 15, 2006, 2:28 am
Please log in for more thread options > My investment (short term) income was higher than the
> interest I payed to Ameritrade broikerage for margin
> interest. I expected that margin interest (used only to
> finance short term stock trades) can be deducted from my
> investment income.
>
> However, H&R Block accountant (?!) told me that, since my
> margin interest payment is lower than $5,000 deductible
> allowed by the Government, nothing would be accomplished
> (i.e. I won't pay less taxes) by deducting it.
>
> In short, if my short term trades investment income was
> $2,000 and margin interest was $1,000, according to H&R
> Block person, I have to report $2,000 as investment income
> and I can simply forget about $1,000 margin interest payed
> to the brokerage on that income (it can't be deducted)
>
> Now I am completely confused and seeking explanations and
> help on this issue. Why are broker's comissioins deductible
> but margin interest is not?
Broker's commissions directly reduce the gain you make on a
specific trade. When you report that gain on Schedule D, you
report the net gain including the effect of the commissions.
Margin Interest is an itemized deduction, reported on
Schedule A. Other itemized deductions are things like state
income tax, property tax, mortgage interest, and charitable
contributions. When you compute your taxes you sum up all
these itemized deductions and subtract them from your
(adjusted) gross income. OR instead of subtracting these
itemized deductions you can subtract a "standard" deduction,
which happens to be $5,000 for a single person. If your
total itemized deductions are less than your standard
deduction, you come out ahead by using the standard
deduction. Sounds like that is what happened to you.
--
Don EA in Upstate NY
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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|
Posted by Herb Smith on April 15, 2006, 2:28 am
Please log in for more thread options Tony wrote:
> I went to H&R Block to file my tax return.
>
> My investment (short term) income was higher than the
> interest I payed to Ameritrade broikerage for margin
> interest. I expected that margin interest (used only to
> finance short term stock trades) can be deducted from my
> investment income.
>
> However, H&R Block accountant (?!) told me that, since my
> margin interest payment is lower than $5,000 deductible
> allowed by the Government, nothing would be accomplished
> (i.e. I won't pay less taxes) by deducting it.
>
> In short, if my short term trades investment income was
> $2,000 and margin interest was $1,000, according to H&R
> Block person, I have to report $2,000 as investment income
> and I can simply forget about $1,000 margin interest payed
> to the brokerage on that income (it can't be deducted)
>
> However, everything I read on the Web appears to contradict
> this.
>
> Now I am completely confused and seeking explanations and
> help on this issue. Why are broker's comissioins deductible
> but margin interest is not?
Do you itemize your deductions on Schedule A? Do they
(including the margin interest) exceed $5,000? If not, then
you use the Standard Deduction of $5,000 and get no
additional tax benefit from the margin interest. One or the
other.
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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