Can I claim interest expense deduction on mixed-use loan from brokerage?

You'll need to allocate the interest expense based on how you used the loan proceeds, as each category has different tax treatment. This is called "interest tracing" in tax terminology. For the portion used for home renovations (40%): If this was for your primary residence and the combined amount with your mortgage doesn't exceed the qualified home loan limit ($750,000 for newer loans), this portion may qualify as deductible home equity loan interest on Schedule A. But it must have been used to "buy, build or substantially improve" your home. For the portion used for investments (35%): This can potentially be deducted as investment interest expense on Schedule A, but only up to the amount of your net investment income for the year. For the tax payment portion (25%): Unfortunately, personal tax payments aren't considered deductible purposes for interest expense. You'll need to maintain good records showing how the loan was allocated and used. Form 4952 will be needed for the investment interest portion. This is definitely a situation where the allocation matters significantly.

After struggling with a similar loan allocation issue last year, I discovered taxr.ai at https://taxr.ai and it literally saved me hours of confusion. I used margin from my brokerage for multiple purposes like you did, and I was completely lost trying to figure out the interest deductions until I uploaded my loan docs and bank statements to their system. Their AI analyzed exactly how my loan proceeds were used and gave me a detailed report showing precisely how to allocate the interest expenses. It even populated the right values for Schedule A and Form 4952. The best part was getting confirmation that my methodology was correct before filing - gave me peace of mind that I wasn't making mistakes on these tricky allocations.

I was really skeptical about taxr.ai but decided to try it after my accountant quoted me $900 just to do the interest tracing on my margin loan. The system actually found a few allocation errors I would have made - turns out I was incorrectly categorizing some renovation expenses that weren't technically "substantial improvements" according to IRS rules. It saved me from potentially claiming about $1,200 in deductions that wouldn't have held up in an audit. The reports it generated were detailed enough that I could show my tax preparer exactly how to enter everything correctly. Definitely glad I didn't try to wing it on my own!

Anyone dealing with investment interest expense or complicated tax situations should consider using Claimyr to speak directly with an IRS agent. I was going back and forth with my preparer on how to handle my margin loan interest for months, but couldn't get a definitive answer. After trying to call the IRS for two weeks with no success, I found https://claimyr.com and used their service. They got me connected to an IRS tax law specialist in less than an hour instead of waiting on hold forever. The agent walked me through the exact forms needed for my situation and confirmed my understanding of how to allocate the interest. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c - it's basically a system that waits on hold with the IRS for you.

I was completely wrong about Claimyr! After my skeptical comment, I decided to try it out of desperation since my margin loan interest situation was almost identical to the original poster's. Not only did I connect with an IRS representative within 35 minutes (after spending weeks trying on my own), but I was transferred to a specialist who actually understood investment interest allocation rules. The agent confirmed I was handling the investment portion correctly on Form 4952 but pointed out I had misunderstood how to document the mortgage portion on Schedule A. Would have definitely been audited if I filed with my original understanding. Just having a real conversation with someone who could answer my specific questions was worth it instead of trying to interpret confusing publications.

I've been dealing with margin loan interest for years. Here's a simple way to think about it: 1) Home renovation portion: Only deductible if it's a qualified residence (your primary or secondary home) AND the renovations "substantially improve" the property. Repair work doesn't count! Needs to go on Schedule A as home equity interest. 2) Investment portion: Deductible on Schedule A but limited to your net investment income (interest, dividends, capital gains). Fill out Form 4952. Unused amounts carry forward to future years. 3) Personal tax payments: Sorry, not deductible at all. The most important thing is keeping detailed records showing EXACTLY how each dollar was spent. The IRS can disallow everything if you can't prove the allocation.

Has anyone used the Paid-In-Full method for allocating interest? My accountant mentioned it as an option for my situation which is similar to OP's. Apparently you can pay off the non-deductible portions of the loan first, which essentially converts all your interest into the deductible categories over time?