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Posted by Arthur Kamlet on August 1, 2007, 4:26 pm
Please log in for more thread options > kam...@panix.com (Arthur Kamlet) wrote:
>>>> f I need to borrow money to invest in stock market, what's
>>>> more attractive from the tax/cost perspective between using
>>>> home equity and margin borrowing offered by the broker?
>>>>
>>>> I think the home equity interest might be (partially) tax
>>>> deductable. The margin interest may be counted as investment
>>>> cost. But I don't know how the investment cost is treated.
>>>> Is it fully deducted from your investment gain or what?
>>> Forget the tax/cost perspective and look at the risk
>>> perspective. If you are a lousy stock picker would you
>>> rather lose your investment or your house? For what it's
>>> worth, margin interest is deductible as an itemized
>>> deduction to the extent you have investment income. Except
>>> in some less common circumstances, it doesn't affect your
>>> investment gain.
>> Both investment interest and home equity interest are
>> deductible on Schdule A, but with different limits,
>>
>> Investment interest is limited to investment income.
>>
>> Home equity interest is limited to $100,000 principal
>> on the main home or one second home.
>>
>> Home equity interest is not deductible for AMTI, so may
>> throw you into AMT.
>>
>> Traceability may apply to investment interest.
> So assuming both are not reach their respective limits, can
> I conclude that the investment interest is more attractive
> in a typical situation (e.g. investment interest rate is 10%
> and home equity is 7.25%)? For example, for simplicity,
> assuming one makes 5K profit and borrowning 10K.
>
> 1) using investment margin, the interest is 1K and the net
> taxable amount is 4K
>
> 2) using home equity, the interest is 0.725K, but one can
> only deduct, say, up to 35% of that amount, depending on his
> individual tax rate.
>
> Is my understanding correct?
I don't think so.
As a starting point, if you need to borrow, find the
lowest rate.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
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