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Strategies & Market Trends : Income Taxes and Record Keeping ( tax ) -- Ignore unavailable to you. Want to Upgrade?

To: crh02 who wrote (2385)	11/13/1999 11:40:00 PM
From: Kaye Thomas	Read Replies (4) \| Respond to of 5810

Are you saying that if my net short-term stock market earnings exceed the level of "accumulated margin interest" (related to stock purchases), then can I write off all said interest? That's roughly true, but let's be a little more precise. Your deduction for investment interest is limited to your net investment income (with any excess carried to the next year). That income can be made up of interest income, dividends, and various other items, including short-term capital gains. It can also include long-term capital gains, but only to the extent you elect to forgo the benefit of the lower capital gains tax rate on that income. You make this election on line 4e of Form 4952. I have a hunch why there was confusion on this issue to start with. Here's a quote from IRS Publication 550: Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). However, you can choose to include all or part of your net capital gain in investment income. I call your attention to the term "net capital gain." In the world of civilized discourse, this term means the excess of your capital gains over your capital losses. You would be forgiven for believing that you have a net capital gain if you had only short-term capital gain. Among tax technicians, however, "net capital gain" has a different meaning: the excess of your net long-term capital gain over your net short-term capital loss. In other words, it's the portion of your income that qualifies for the special long-term capital gain rates. The above quote from Pub 550 is using the term in the technical sense when it says that net capital gain generally isn't included in net investment income. But the CPA who messed up on this issue may have forgotten this, and thought the Pub was saying that capital gain generally doesn't count. Anyway, the bottom line is that short-term gain counts, and if you're willing to give up the special tax rates on long-term gain, then that counts, too. Kaye Thomas, author Fairmark Press Tax Guide for Investors fairmark.com