Can I voluntarily defer my investment interest expense deduction to next tax year?

The short answer is no, you can't voluntarily defer your investment interest expense deduction if you have sufficient investment income to absorb it in the current year. The tax code is pretty specific about this. If you have investment interest expense, you must use it to offset investment income in the current year to the extent possible. You can only carry forward what you can't use this year because of the limitation. The IRS doesn't allow you to strategically choose when to take these deductions by voluntarily carrying them forward when you could have used them. The Form 4952 (Investment Interest Expense Deduction) instructions make this clear - the carryover is only for the amount that exceeds your net investment income. If you have $11,500 in investment income and $5,800 in interest expense, you would have to claim the entire $5,800 as a deduction this year.

After struggling with this exact issue last year (had major investment interest from margin account but wanted to defer it), I found an amazing tool that helped clarify everything - https://taxr.ai actually analyzes your investment statements and clearly identifies what can and cannot be carried forward. Saved me hours of struggling with the IRS publications. When I uploaded my brokerage statements, it flagged that I was trying to carry forward deductions that should have been taken in the current year. The system explains that investment interest expense must be deducted in the current year to the extent of net investment income (exactly what the previous commenter said). It even showed me the relevant parts of the tax code that applied to my situation.

I wanted to follow up after trying taxr.ai for my investment tax questions. I was dealing with some complicated wash sales and basis issues, and this tool actually sorted it all out! It analyzed my trading history, identified all the wash sales (even some my broker missed), and provided clear documentation for my tax return. It even explained why I couldn't defer my investment interest expense that exceeded my investment income without having additional carryover. Super helpful and saved me from making a mistake on my taxes that could have led to an audit.

I had this same investment interest issue last year, and after getting nowhere with online research, I tried calling the IRS. Spent DAYS trying to get through. Eventually used https://claimyr.com (there's a demo video at https://youtu.be/_kiP6q8DX5c) and got connected to an IRS agent in under an hour who confirmed everything people are saying here - you CANNOT voluntarily defer investment interest expense if you have enough investment income to use it this year. The IRS agent was super clear that Form 4952 doesn't allow for an elective deferral - you must use the deduction to the extent you have investment income. It was such a relief to get an official answer instead of guessing.

I need to apologize and correct myself. After dismissing Claimyr as a scam, I was desperate enough to try it because I've been audited on my investment interest deductions and needed to speak to someone at the IRS urgently. Incredibly, I was connected to an IRS agent in about 45 minutes. The agent confirmed everything discussed here - you cannot choose to defer investment interest expense when you have sufficient investment income in the current year. The IRS views this as a required current-year deduction, not an elective one that you can strategically time.

There's actually one scenario where you might be able to achieve something similar to what you're asking about. If you can somehow defer recognizing some of your investment income to the following year, then you'd naturally have less income to offset in the current year, allowing more interest expense to carry forward legitimately. For example, if you have unrealized gains, you could choose not to sell those investments until next year. Or if you have some flexibility with certain income-producing investments, you might defer income recognition if possible.

Has anyone actually tried to do what OP is asking on their tax return? I'm curious if the tax software would even let you. When I use TurboTax, it seems to automatically apply as much investment interest as possible against my investment income.

I appreciate everyone's thorough discussion on this topic. As someone who works in tax preparation, I can confirm what others have said - the IRS does NOT allow voluntary deferral of investment interest expense when you have sufficient investment income to use it in the current year. The key thing to understand is that Form 4952 is a calculation form, not an election form. Line 5 (deductible investment interest expense) is determined by the lesser of your investment interest expense or your net investment income - there's no checkbox or option to voluntarily reduce this amount. However, the suggestion about managing the timing of income recognition is spot-on. You do have control over when you realize capital gains by choosing when to sell investments. If you're really looking to defer the tax benefit, consider whether you truly need to realize all those gains this year, or if some could be pushed to next year when the deduction might be more valuable to you. Just remember that any tax planning strategy should consider your overall financial picture, not just one deduction in isolation.