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Investment Interest
If you borrow money to buy property you hold for investment, the interest you pay is investment interest. You can deduct investment interest subject to the limit discussed later. However, you cannot deduct interest you incurred to produce tax-exempt income. See Tax-exempt income under Nondeductible Expenses, later. Nor can you deduct interest expenses on straddles, also discussed under Nondeductible Expenses.
Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity.
Investment property. Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity).
Partners, shareholders, and beneficiaries. To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest.
Back to: Investment Interest Expense IndexOther sections to read about investment interest expense: Investment Interest Expense, Investment Interest General Information, Allocation of Interest Expense, When to Deduct Interest Expense, Form 4954 Guidelines, Investment Income of Children, Limits on Investment Interest Deduction, Investment Expenses
