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Know limitations to interest deductions

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. I collaterized a loan for someone else in a securities account that was called. Can I deduct the interest? S.W., Merrick, N.Y.

A. It does not appear that this interest will qualify as investment interest (subject to the usual limits) because it is not interest on a loan designed to generate investment income. The tax law says that any interest that does not qualify under one of the designated interest categories must be treated as nondeductible personal interest.

Tip: The deduction for investment interest is limited to your “net investment income” for the year (i.e., the excess of investment income over investment expenses).

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