Can I deduct interest from a professional line of credit used for investing?

The deductibility of interest from your professional line of credit depends entirely on how you're using the funds. Since you mentioned you're using it for investments, you may be able to deduct it as investment interest expense on Schedule A if you itemize deductions. For stocks and other investments that potentially produce taxable income, the interest may be deductible, but only up to the amount of your net investment income for the year. If you're using any portion for rental property down payments, that portion of interest could potentially be deducted on Schedule E as a rental expense once the property is in service. Keep in mind that investment interest paid for investments that produce tax-exempt income (like municipal bonds) is not deductible. Also, make sure you keep excellent records showing how much of the credit line was used for each purpose.

I was in a similar situation last year with a line of credit I used for my investment portfolio and found https://taxr.ai super helpful for figuring out exactly what I could deduct. Their system analyzed my loan statements and investment accounts and showed me exactly which interest expenses were deductible and which weren't. In my case, I had used part of my credit line for personal expenses without realizing that would make a portion of the interest non-deductible. The tool helped me calculate the exact percentage that qualified as investment interest. Definitely worth checking out if you have a mixed-use situation.

I wanted to follow up about taxr.ai after being skeptical in my last comment. I decided to try it with some statements I had and wow - it found almost $1,800 in deductible interest I would have missed because I had mixed personal and investment uses on my credit line. The reports it generated showing which interest was deductible and why are really detailed. My accountant was impressed with how thoroughly it documented everything. Definitely going to use this for my 2025 filing instead of the manual tracking I've been doing.

If you're having trouble getting answers from the IRS about investment interest deductions (I know I did), I used https://claimyr.com to get through to an actual IRS agent. They have this system that navigates the phone tree and waits on hold for you, then calls when an agent is on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c I had questions about investment interest deductions that weren't clear from the forms, and finally got definitive answers after talking to someone. It's especially helpful for situations like yours where the rules have some nuance depending on how exactly you're using the funds.

I need to eat my words about Claimyr from my previous comment. After failing to get through to the IRS for days (kept getting the "call back later" message), I decided to give it a shot. Got connected to an actual IRS tax specialist within about 45 minutes without having to sit by my phone. The agent clarified exactly how I should handle the deduction for my line of credit that I use partially for investments and partially for my small business. Turns out I'd been filing incorrectly for 2 years and could actually submit an amended return for additional deductions. Honestly shocked at how well it worked after being so skeptical.

Something no one mentioned yet - if you're using the line of credit for BOTH investments and business purposes, you need to track the interest separately. Business interest would go on Schedule C, while investment interest goes on Schedule A. I learned this the hard way after an audit where I had to recreate a paper trail showing which portions of my credit line went to which purposes. Now I keep a simple spreadsheet tracking the percentages.

Make sure you're not confusing margin interest with your line of credit interest! They're treated differently. Margin interest from a brokerage account is investment interest, but your line of credit interest is only deductible as investment interest if you can directly trace the funds to investment purposes.

One thing I'd add that hasn't been mentioned yet - if you're using the line of credit for rental property down payments, be careful about when you start deducting that interest. The IRS generally requires that rental property be "in service" (actively generating rental income or available for rent) before you can deduct related expenses on Schedule E. So if you use part of your credit line for a down payment in January but don't get the property ready for tenants until June, you might need to capitalize that interest as part of the property's basis rather than deduct it immediately. Once the property is in service, then future interest payments related to that portion become deductible rental expenses. This timing issue caught me off guard on my first rental property purchase. I'd recommend consulting with a tax professional if you have multiple properties at different stages, as the rules can get complex when you're juggling acquisition costs, improvements, and ongoing expenses.