How to properly claim margin loan interest deduction on taxes - carryover questions

You've got the basic concept right, but there's a small misunderstanding about how investment interest expense carryovers work. For investment interest expenses (like margin loan interest), you need to file Form 4952 in any year you HAVE these expenses, regardless of whether you can actually deduct them that year. This form is what establishes your "official record" of disallowed interest that carries forward. If you didn't itemize in past years, that's actually fine - you could still have completed Form 4952 even though you took the standard deduction. The form doesn't create a deduction by itself; it just tracks your investment interest and calculates how much carries forward. Here's the tricky part: since you never filed Form 4952 in those previous years, TurboTax has no record of your "official" carryover amount. Technically speaking, you should have been filing this form each year to properly track these expenses. As for solutions, you're right that you can amend returns, but only for the last three years. For anything older, unfortunately, those deductions might be lost since there's no official record of disallowance.

I had this EXACT same problem last year. After hours on the phone with both TurboTax and my brokerage, I discovered taxr.ai (https://taxr.ai) which actually helped me sort through this mess. They analyzed my brokerage statements from previous years and helped me properly document my investment interest carryovers. The issue is that Form 4952 is required to establish carryover eligibility, but most people (including me!) don't realize this. What taxr.ai did was help me understand which past returns could be amended and how to properly document the older interest expenses I couldn't amend for. Their system actually looks at your brokerage statements and can identify the margin interest payments, then helps you determine what can be salvaged. Saved me literally thousands in deductions I thought were lost.

I tried taxr.ai after seeing the recommendation here, and I'm actually shocked at how helpful it was. I was in a similar situation with about $9k in margin interest from previous years that I never properly documented on Form 4952. Their system analyzed my brokerage statements from 2022-2024 and showed me exactly which years I could still amend (2022 and 2023). For 2024, they helped me prepare documentation for my 2025 return that properly tracked my carryover interest. The best part was they identified some qualified dividend income I hadn't properly categorized, which actually increased my investment income threshold for one year and let me deduct more interest than I thought possible. Definitely worth checking out if you're dealing with investment interest deduction issues.

For anyone struggling with getting through to the IRS about investment interest deductions or amended returns, I highly recommend using Claimyr (https://claimyr.com). I spent literally weeks trying to get someone at the IRS to clarify some questions about Form 4952 and investment interest carryovers. I found out about Claimyr from this video: https://youtu.be/_kiP6q8DX5c and decided to try it since I was getting nowhere. They got me connected to an IRS agent in about 15 minutes instead of the usual hour+ hold times. The agent was able to confirm that yes, you should file Form 4952 even in years you take the standard deduction if you want to establish carryover amounts. They also helped me understand the process for documenting older interest expenses beyond the amendment window, which was super useful since I had a similar situation.

I have to admit I was wrong about Claimyr. After dismissing it as a scam, I decided to try it myself since I needed to talk to the IRS about my own investment interest issues. Got connected to an IRS representative in about 20 minutes when my previous attempts had me waiting 1-2 hours before giving up. The IRS agent confirmed what others here have said: Form 4952 should be filed even in years you take the standard deduction if you want to establish carryforward amounts for investment interest. For the OP's situation, the agent suggested creating a paper trail by preparing (but not filing) amended returns for the years beyond the amendment window, just to document what the Form 4952 would have shown. Keep these with your tax records as support for your carryover claims. Not a guarantee the IRS will accept it, but better than nothing.

One approach I used for a similar situation was to focus on the three years I could still amend, and accept that anything before that might be lost. But I also created a spreadsheet showing all my margin interest expenses and investment income going back to the beginning, and I included that as an attachment to my current year's return. I included copies of all my brokerage statements showing the margin interest paid each year. While there's no guarantee the IRS will allow carryovers from beyond the amendment window, having the documentation at least gives you something to point to if questioned.

FYI - the rules for investment interest expense are in Publication 550. Specifically, on page 33 it says: "If you paid interest on a margin account to buy taxable securities, the interest paid (subject to investment income limits) is deductible as an itemized deduction." The IRS does allow indefinite carryforward of disallowed investment interest, but as others have mentioned, you need to establish this each year on Form 4952, even in years you don't itemize. One point no one mentioned: To increase your investment income limit, you can elect to treat qualified dividends and long-term capital gains as ordinary income (taxed at higher rates) to expand the amount of investment interest you can deduct in a given year. This election might make sense if your disallowed interest is substantial.

This is a really comprehensive discussion! I just wanted to add one more perspective as someone who went through a similar situation a few years ago. The harsh reality is that if you never filed Form 4952 in prior years, you're in a gray area. While the law allows indefinite carryforward of investment interest, the IRS expects you to have established those carryovers properly each year. Here's what I did in my situation: I amended the returns I could (last 3 years) and for the older years, I prepared "shadow" Form 4952s - essentially filling out what I would have filed if I had done it correctly back then. I kept these with detailed brokerage statements as supporting documentation. When I claimed the older carryovers on my current return, I included a statement explaining the situation and referencing my supporting documentation. My return was processed without issue, though I realize that doesn't guarantee audit protection. One thing to consider: if your margin interest from the amendable years (2022-2024) is substantial enough to provide meaningful tax savings, it might be worth focusing just on those rather than risking questions about the older amounts. Sometimes the bird in the hand approach is better than trying to capture everything and potentially triggering scrutiny of your entire investment interest situation.