Investment Expense Eligibility - Money Market Fund

Forum|Forum|10 months ago
May 11, 2025
1 reply
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Hello,

I have a hypothetical question about whether a margin loan placed into a Money Market Fund (e.g SPAXX) would allow me to accrue deductible interest that can be used to offset other investment income (assuming it qualifies under publication 550). For example,

1. I take out a margin loan against an individual brokerage account

2. I deposit the entire balance into a money market account

3. The entire amount is held in the MMF until $Y margin interest is accrued

Assuming my total investment income was greater than or equal to $Y, would I be able to deduct the interest I paid on the loan? Is using a MMF in this way fundamentally different (other than level of risk and interest paid) than holding any other security. Apologies if my question isn't clear.

Thank you!

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Bsch4477

Employee

While the interest on the loan is deductible to the extent of investment income the usually interest rate on your margin loan will be about 3 times the rate from your money market account.

averagetaxenjoyerAuthor

Thank you for the response!

And yes sorry, in this hypothetical other sources of investment income (dividends, etc.) are what is being offset for tax purposes, the additional interest from the fund would overall be a small proportion of the portfolio income. In this situation I would hold a large balance in an MMF with the intent of accruing enough interest to deduct against the other (preexisting) sources of income.

From your response it sounds like this is an eligible investment vehicle for these purposes.

Thanks again!