borrow money and interest is tax deductible

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babystep
Posts: 815
Joined: Tue Apr 09, 2019 9:44 am

borrow money and interest is tax deductible

Post by babystep »

Hi,

I would like to compile a list of options such that interest on borrowed money is tax deductible.

Edited from the comments in this thread.
  • deduct the mortgage interest you paid during the tax year on the first $750,000 of your mortgage debt for your primary home or a second home
  • margin interest from your taxes by itemizing your deductions and subtracting margin interest costs from your net investment income.
  • Mortgage interest is tax-deductible for the rental property
  • A boat or RV can qualify as a 2nd home and interest is deductible as long as it has sleeping quarters, a bathroom and a kitchen
  • Borrow via spx box spread instead of margin loan and the interest is capital loss, 60/40
  • small business loans. loans on vehicles used for business
  • Margin interest deductible if proceeds used to invest not used for personal.
What options folks have used in practice which are tax deductible?
Last edited by babystep on Sun Feb 25, 2024 2:31 pm, edited 1 time in total.
gotoparks
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Re: borrow money and interest is tax deductible

Post by gotoparks »

You have to compare the standard deduction to itemizing your deductions. I itemize but only 10% of people itemize after the tax law in 2017. I am surprised at lots of high income people on this forum that use the standard deduction.
nalor511
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Re: borrow money and interest is tax deductible

Post by nalor511 »

Borrow via spx box spread instead of margin loan and the interest is capital loss, 60/40
Last edited by nalor511 on Thu Feb 22, 2024 5:51 pm, edited 1 time in total.
smitcat
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Re: borrow money and interest is tax deductible

Post by smitcat »

- small business loans
- loans on boats/RV's
- loans on vehicles used for business
IDpilot
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Re: borrow money and interest is tax deductible

Post by IDpilot »

smitcat wrote: Thu Feb 22, 2024 8:17 am - small business loans
- loans on boats/RV's
- loans on vehicles used for business
Loans on boats/RV's for personal use are NOT tax deductible
klaus14
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Re: borrow money and interest is tax deductible

Post by klaus14 »

nalor511 wrote: Thu Feb 22, 2024 1:16 am Borrow via spc box spread instead of margin loan and the interest is capital loss, 60/40
spx box spread.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
nalor511
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Re: borrow money and interest is tax deductible

Post by nalor511 »

klaus14 wrote: Thu Feb 22, 2024 5:28 pm
nalor511 wrote: Thu Feb 22, 2024 1:16 am Borrow via spc box spread instead of margin loan and the interest is capital loss, 60/40
spx box spread.
Yes. Boxtrades.com
EdNorton
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Re: borrow money and interest is tax deductible

Post by EdNorton »

IDpilot wrote: Thu Feb 22, 2024 5:25 pm
smitcat wrote: Thu Feb 22, 2024 8:17 am - small business loans
- loans on boats/RV's
- loans on vehicles used for business
Loans on boats/RV's for personal use are NOT tax deductible
A boat or RV can qualify as a 2nd home and interest is deductible as long as it has sleeping quarters, a bathroom and a kitchen (or galley).
:sharebeer
Outside a dog, a book is man's best friend, inside a dog, it's too dark to read - Groucho
Dmevsjd
Posts: 83
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Re: borrow money and interest is tax deductible

Post by Dmevsjd »

EdNorton wrote: Thu Feb 22, 2024 5:54 pm
IDpilot wrote: Thu Feb 22, 2024 5:25 pm
smitcat wrote: Thu Feb 22, 2024 8:17 am - small business loans
- loans on boats/RV's
- loans on vehicles used for business
Loans on boats/RV's for personal use are NOT tax deductible
A boat or RV can qualify as a 2nd home and interest is deductible as long as it has sleeping quarters, a bathroom and a kitchen (or galley).
:sharebeer
This.

Just like a loan on a sticks and bricks second home.
Topic Author
babystep
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Re: borrow money and interest is tax deductible

Post by babystep »

klaus14 wrote: Thu Feb 22, 2024 5:28 pm
nalor511 wrote: Thu Feb 22, 2024 1:16 am Borrow via spc box spread instead of margin loan and the interest is capital loss, 60/40
spx box spread.
Thank you. I will edit the OP after few days to include this and other options.
Topic Author
babystep
Posts: 815
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Re: borrow money and interest is tax deductible

Post by babystep »

nalor511 wrote: Thu Feb 22, 2024 1:16 am Borrow via spx box spread instead of margin loan and the interest is capital loss, 60/40
Thanks :happy
Topic Author
babystep
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Re: borrow money and interest is tax deductible

Post by babystep »

Dmevsjd wrote: Thu Feb 22, 2024 7:36 pm
EdNorton wrote: Thu Feb 22, 2024 5:54 pm
IDpilot wrote: Thu Feb 22, 2024 5:25 pm
smitcat wrote: Thu Feb 22, 2024 8:17 am - small business loans
- loans on boats/RV's
- loans on vehicles used for business
Loans on boats/RV's for personal use are NOT tax deductible
A boat or RV can qualify as a 2nd home and interest is deductible as long as it has sleeping quarters, a bathroom and a kitchen (or galley).
:sharebeer
This.

Just like a loan on a sticks and bricks second home.
I love the creativity. Thanks.
Raycpact
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Re: borrow money and interest is tax deductible

Post by Raycpact »

Margin interest deductible if proceeds used to invest not used for personal.
toddthebod
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Re: borrow money and interest is tax deductible

Post by toddthebod »

smitcat
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Re: borrow money and interest is tax deductible

Post by smitcat »

IDpilot wrote: Thu Feb 22, 2024 5:25 pm
smitcat wrote: Thu Feb 22, 2024 8:17 am - small business loans
- loans on boats/RV's
- loans on vehicles used for business
Loans on boats/RV's for personal use are NOT tax deductible
Second 'homes' are tax deductible.
Post asked what options we have actually used.
Lawyered_
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Re: borrow money and interest is tax deductible

Post by Lawyered_ »

Box spreads.
Dmevsjd
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Re: borrow money and interest is tax deductible

Post by Dmevsjd »

smitcat wrote: Fri Feb 23, 2024 7:59 am
IDpilot wrote: Thu Feb 22, 2024 5:25 pm
smitcat wrote: Thu Feb 22, 2024 8:17 am - small business loans
- loans on boats/RV's
- loans on vehicles used for business
Loans on boats/RV's for personal use are NOT tax deductible
Second 'homes' are tax deductible.
Post asked what options we have actually used.
Traveling in my coach in the warm south instead of sitting in the cold up north; t-shirt and shorts, 72 in the Texas Hill Country as I sit in the sun, doesn’t get better than that!
milktoast
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Re: borrow money and interest is tax deductible

Post by milktoast »

gotoparks wrote: Thu Feb 22, 2024 1:10 am You have to compare the standard deduction to itemizing your deductions. I itemize but only 10% of people itemize after the tax law in 2017. I am surprised at lots of high income people on this forum that use the standard deduction.
I'm rather high w2 income, and we are standard deduction. If you are married with a paid off mortgage it's hard to reach itemization.

SALT is $10k. Then you have to come up with about $18k more in itemized. But all the deductions and credits for children, education, medical, etc. phase out or need to exceed a percentage of your income.

Which means you need to donate >$18k to charity before it's deductible. Kudos to people who hit that, but we only donate about $15k a year.
toddthebod
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Re: borrow money and interest is tax deductible

Post by toddthebod »

milktoast wrote: Fri Feb 23, 2024 2:36 pm
gotoparks wrote: Thu Feb 22, 2024 1:10 am You have to compare the standard deduction to itemizing your deductions. I itemize but only 10% of people itemize after the tax law in 2017. I am surprised at lots of high income people on this forum that use the standard deduction.
I'm rather high w2 income, and we are standard deduction. If you are married with a paid off mortgage it's hard to reach itemization.

SALT is $10k. Then you have to come up with about $18k more in itemized. But all the deductions and credits for children, education, medical, etc. phase out or need to exceed a percentage of your income.

Which means you need to donate >$18k to charity before it's deductible. Kudos to people who hit that, but we only donate about $15k a year.
Mortgage interest.
leuler
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Re: borrow money and interest is tax deductible

Post by leuler »

I'm rather high w2 income, and we are standard deduction. If you are married with a paid off mortgage it's hard to reach itemization.

SALT is $10k. Then you have to come up with about $18k more in itemized. But all the deductions and credits for children, education, medical, etc. phase out or need to exceed a percentage of your income.

Which means you need to donate >$18k to charity before it's deductible. Kudos to people who hit that, but we only donate about $15k a year.
We're similar - but batch 3 to 5 years of charitable contributions and make a single year contribution to a DAF (we use Fidelity) and then can distribute from the DAF to the charities each year. Gives a deduction for the year of contribution to DAF.
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vnatale
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Location: Montague, MA

Re: borrow money and interest is tax deductible

Post by vnatale »

toddthebod wrote: Fri Feb 23, 2024 3:17 pm
milktoast wrote: Fri Feb 23, 2024 2:36 pm
gotoparks wrote: Thu Feb 22, 2024 1:10 am You have to compare the standard deduction to itemizing your deductions. I itemize but only 10% of people itemize after the tax law in 2017. I am surprised at lots of high income people on this forum that use the standard deduction.
I'm rather high w2 income, and we are standard deduction. If you are married with a paid off mortgage it's hard to reach itemization.

SALT is $10k. Then you have to come up with about $18k more in itemized. But all the deductions and credits for children, education, medical, etc. phase out or need to exceed a percentage of your income.

Which means you need to donate >$18k to charity before it's deductible. Kudos to people who hit that, but we only donate about $15k a year.
Mortgage interest.
It was stated above: "a paid off mortgage"
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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vnatale
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Location: Montague, MA

Re: borrow money and interest is tax deductible

Post by vnatale »

leuler wrote: Fri Feb 23, 2024 4:37 pm
I'm rather high w2 income, and we are standard deduction. If you are married with a paid off mortgage it's hard to reach itemization.

SALT is $10k. Then you have to come up with about $18k more in itemized. But all the deductions and credits for children, education, medical, etc. phase out or need to exceed a percentage of your income.

Which means you need to donate >$18k to charity before it's deductible. Kudos to people who hit that, but we only donate about $15k a year.
We're similar - but batch 3 to 5 years of charitable contributions and make a single year contribution to a DAF (we use Fidelity) and then can distribute from the DAF to the charities each year. Gives a deduction for the year of contribution to DAF.
Excellent strategy.

For about thirty years I got maximum value out of my "free" standard deduction.

Year one I'd pay no state taxes, real estate taxes, or charitable deductions.

Year two I'd pay double all the above.

Then repeat.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
toddthebod
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Re: borrow money and interest is tax deductible

Post by toddthebod »

vnatale wrote: Fri Feb 23, 2024 7:05 pm
toddthebod wrote: Fri Feb 23, 2024 3:17 pm
milktoast wrote: Fri Feb 23, 2024 2:36 pm
gotoparks wrote: Thu Feb 22, 2024 1:10 am You have to compare the standard deduction to itemizing your deductions. I itemize but only 10% of people itemize after the tax law in 2017. I am surprised at lots of high income people on this forum that use the standard deduction.
I'm rather high w2 income, and we are standard deduction. If you are married with a paid off mortgage it's hard to reach itemization.

SALT is $10k. Then you have to come up with about $18k more in itemized. But all the deductions and credits for children, education, medical, etc. phase out or need to exceed a percentage of your income.

Which means you need to donate >$18k to charity before it's deductible. Kudos to people who hit that, but we only donate about $15k a year.
Mortgage interest.
It was stated above: "a paid off mortgage"
I don't read carefully.
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vnatale
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Location: Montague, MA

Re: borrow money and interest is tax deductible

Post by vnatale »

toddthebod wrote: Fri Feb 23, 2024 7:07 pm
vnatale wrote: Fri Feb 23, 2024 7:05 pm
toddthebod wrote: Fri Feb 23, 2024 3:17 pm
milktoast wrote: Fri Feb 23, 2024 2:36 pm
gotoparks wrote: Thu Feb 22, 2024 1:10 am You have to compare the standard deduction to itemizing your deductions. I itemize but only 10% of people itemize after the tax law in 2017. I am surprised at lots of high income people on this forum that use the standard deduction.
I'm rather high w2 income, and we are standard deduction. If you are married with a paid off mortgage it's hard to reach itemization.

SALT is $10k. Then you have to come up with about $18k more in itemized. But all the deductions and credits for children, education, medical, etc. phase out or need to exceed a percentage of your income.

Which means you need to donate >$18k to charity before it's deductible. Kudos to people who hit that, but we only donate about $15k a year.
Mortgage interest.
It was stated above: "a paid off mortgage"
I don't read carefully.
You are easily excused as I have too oftentimes been guilty of the same thing. So, you can go easy on me next time you catch me doing it again.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
snowday2022
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Re: borrow money and interest is tax deductible

Post by snowday2022 »

toddthebod wrote: Fri Feb 23, 2024 3:17 pm
milktoast wrote: Fri Feb 23, 2024 2:36 pm
gotoparks wrote: Thu Feb 22, 2024 1:10 am You have to compare the standard deduction to itemizing your deductions. I itemize but only 10% of people itemize after the tax law in 2017. I am surprised at lots of high income people on this forum that use the standard deduction.
I'm rather high w2 income, and we are standard deduction. If you are married with a paid off mortgage it's hard to reach itemization.

SALT is $10k. Then you have to come up with about $18k more in itemized. But all the deductions and credits for children, education, medical, etc. phase out or need to exceed a percentage of your income.

Which means you need to donate >$18k to charity before it's deductible. Kudos to people who hit that, but we only donate about $15k a year.
Mortgage interest.
Even with a 750K mortgage and interest, if the rate is low from the pre 2022 era, it’s still hard to get too much benefit from itemizing unless one makes a ton of charitable contributions. Every other deduction I am phased out, so although I contributed 10K to charity and got max SALT and near max mortgage interest, itemizing only saved me a few thousand in taxes.
toddthebod
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Re: borrow money and interest is tax deductible

Post by toddthebod »

snowday2022 wrote: Fri Feb 23, 2024 10:12 pm
toddthebod wrote: Fri Feb 23, 2024 3:17 pm
milktoast wrote: Fri Feb 23, 2024 2:36 pm
gotoparks wrote: Thu Feb 22, 2024 1:10 am You have to compare the standard deduction to itemizing your deductions. I itemize but only 10% of people itemize after the tax law in 2017. I am surprised at lots of high income people on this forum that use the standard deduction.
I'm rather high w2 income, and we are standard deduction. If you are married with a paid off mortgage it's hard to reach itemization.

SALT is $10k. Then you have to come up with about $18k more in itemized. But all the deductions and credits for children, education, medical, etc. phase out or need to exceed a percentage of your income.

Which means you need to donate >$18k to charity before it's deductible. Kudos to people who hit that, but we only donate about $15k a year.
Mortgage interest.
Even with a 750K mortgage and interest, if the rate is low from the pre 2022 era, it’s still hard to get too much benefit from itemizing unless one makes a ton of charitable contributions. Every other deduction I am phased out, so although I contributed 10K to charity and got max SALT and near max mortgage interest, itemizing only saved me a few thousand in taxes.
That seems like a small blip in time. These days I wouldn't be surprised if 3/4 or more of all new mortgages generate $18,000 in annual interest.
d0gerz
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Re: borrow money and interest is tax deductible

Post by d0gerz »

snowday2022 wrote: Fri Feb 23, 2024 10:12 pmEven with a 750K mortgage and interest, if the rate is low from the pre 2022 era, it’s still hard to get too much benefit from itemizing unless one makes a ton of charitable contributions. Every other deduction I am phased out, so although I contributed 10K to charity and got max SALT and near max mortgage interest, itemizing only saved me a few thousand in taxes.
… a few thousand is still a lot of money, why wouldn’t you want to save it? Unless I’m missing something here.
snowday2022
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Re: borrow money and interest is tax deductible

Post by snowday2022 »

d0gerz wrote: Tue Apr 02, 2024 4:32 am
snowday2022 wrote: Fri Feb 23, 2024 10:12 pmEven with a 750K mortgage and interest, if the rate is low from the pre 2022 era, it’s still hard to get too much benefit from itemizing unless one makes a ton of charitable contributions. Every other deduction I am phased out, so although I contributed 10K to charity and got max SALT and near max mortgage interest, itemizing only saved me a few thousand in taxes.
… a few thousand is still a lot of money, why wouldn’t you want to save it? Unless I’m missing something here.
Oh I still itemize, my point is just that it doesn’t save much money for high earners. If it’s only a few thousand it may not even be worth chasing down all the receipts etc to exactly fill it out, for some (but I do).
toddthebod
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Re: borrow money and interest is tax deductible

Post by toddthebod »

snowday2022 wrote: Tue Apr 02, 2024 10:06 am
d0gerz wrote: Tue Apr 02, 2024 4:32 am
snowday2022 wrote: Fri Feb 23, 2024 10:12 pmEven with a 750K mortgage and interest, if the rate is low from the pre 2022 era, it’s still hard to get too much benefit from itemizing unless one makes a ton of charitable contributions. Every other deduction I am phased out, so although I contributed 10K to charity and got max SALT and near max mortgage interest, itemizing only saved me a few thousand in taxes.
… a few thousand is still a lot of money, why wouldn’t you want to save it? Unless I’m missing something here.
Oh I still itemize, my point is just that it doesn’t save much money for high earners. If it’s only a few thousand it may not even be worth chasing down all the receipts etc to exactly fill it out, for some (but I do).
That's why I like my DAF. One donation receipt, one form 1098, and schedule A is done.
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