Credit Card Interest Deductible when purchasing STOCKS...
Article from The Street.com
Sometimes Credit-Card Interest Can Be Deducted
By Tracy Byrnes
Staff Reporter
6/5/99 12:20 AM ET
Good news. Some of you may be able to deduct your credit-card interest after all. Read on to find out how. This week we also discuss taking a deduction for trading software, whether an uncle or aunt can pay a nephew's college tuition gift-tax free and how to include your capital gains when calculating estimated tax payments. And we have some Keogh follow-up queries.
Keep sending your questions, along with your full name, to taxforum@thestreet.com.
Writing Off Credit-Card Interest
I have a habit of taking all the promotional offers credit-card companies send me and using the money to pay down mortgages on rental properties and buy and sell stocks. Can I deduct the interest on the credit cards if I'm using them for these purposes?
-- Azziz Akbar
Azziz,
My first inclination is to say you have a very bad habit. But I'm going to assume you've done all your homework -- you've explored other loan possibilities, checked the margin rates with your broker -- and determined that the promotional rates on these credit cards are still the better option.
I'll also assume you truly are using these cards just during their promotions, so you're paying the bills in full before the teaser rates expire.
If that's the case, you may be able to take a deduction for some of this interest expense.
Paying down the mortgages on rental properties won't work. To get a mortgage interest deduction, the loan must be secured by the property. This is not the case if you borrowed money from a credit card to pay down a mortgage.
But borrowing money from a credit card to buy and sell stocks may qualify. As long as you can trace the borrowed money from a credit card to your buys and sells, you can take the related interest as an investment expense, says Clarence Kehoe, partner and director of employee benefits at Anchin Block & Anchin, a New York accounting firm.
Would he recommend that you trade with borrowed credit-card money? "No way. A credit card is the last place I'd look to borrow," says Kehoe. But if it works for you, be sure you keep scrupulous details so you can match the borrowed money to your securities purchases.
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