Is credit card interest tax deductible if you put the money on the credit card towards investments?

Question

For example, if I used a cash advance to
1. buy stocks,
2. invest in bonds/fixed income assets
3. "refi" my personal mortgage
4. buy investment property

or any other situations where credit card interest is tax deductible?

Thanks for all you responses. Just to clarify -

Say I borrow $100 from my credit card at 10%.
I owe $110 at the end of the year.

I put this same $100 into a stock (or some other investment). It goes to $120 and I sell, gaining $20.

1. Do I have to pay taxes on $20, or $10 ($20 gain minus $10 interest)?

2. If I didn't sell, can I deduct the $10 interest against my other income?

Answer 1

No. Only those loans that are secured by your real property unless business activity is involved.

Answer 2

The $20 gain on the sale of the stock would be taxed as a capital gain. The $10 in credit card interest would be deductible on schedule A as "investment interest expense". You must itemize to take advantage of the "investment interest expense" deduction. If you don't sell the stock, you can still take the $10 deduction. However, you must have investment income from other sources of at least $10 or the deduction will be limited and carried forward until you have investment income (investment interest is only deductible to the extent of investment income earned).

Please note that investment income does NOT include qualified dividends or capital gains (i.e. gains taxed at 15%). However, you can elect to treat dividends and capital gains as investment income (which allows you to take the investment interest expense deduction now). However, if you do so, you lose the benefits of the 15% rates and that income is taxed at ordinary rates.

Please let me know if you need any clarification.

Answer 3

Yes for all investments except your mortgage. To deduct mortgage interest the house has to be the collateral. For other investments a tracing rule applies. If you can prove that the loan proceeds was put into just taxable investments you can deduct the interest up to the amount of investment income earned.

Answer 4

spicertax is correct about the 'tracing rule'. As others have said, if you use the same card for ANY other purpose, you may have trouble tracing the interest to the investments. Personally, I recommend NOT using a credit card to finance investments, but that is a separate issue.

Answer 5

Yes and No. If you do that, you will end up in a very messy situation.

1. You have to have a separate credit card, just for that purpose, in your business name if you have one.

2. Never co mingle your business and personal charges.

3. Some you can not deduct until a profit is realized.

Answer 6

Can i ask for what reason you would want to do this? even if your rate of intrest on credit card is 8% and u make 10% a year on investments it is not worth it after taxes and certainly is not worth the risk.

Answer 7

no...if you re financed your home with a home equity loan and paid all of those credit cards off with it...the interest you pay on your home equity loan would be tax deductible.