Category: Deductions and Credits
Investment Interest Expense
Investment property includes property that produces income from interest, dividends, annuities, or royalties. For it to qualify as investment property, this income should not be income that is derived in the ordinary course of a trade or business. It also includes property that produces gain or loss from the sale or trade of property producing these types of income. Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity).
Interest that CANNOT be deducted
Investment interest expense does not include any of the following:
- Home mortgage interest
- Interest expense that is properly allocable to a passive activity. Generally, a passive activity is any trade or business activity in which you do not materially participate and any rental activity.
- Any interest expense that is capitalized, such as construction interest subject to section 263A.
- Interest expense related to tax-exempt interest income under section 265.
- Interest expense, disallowed under section 264, on indebtedness with respect to life insurance, endowment, or annuity contracts issued after June 8, 1997, even if the proceeds were used to purchase any property held for investment.
For more information on Investment Interest Expenses, please reference IRS Publication 550.