deja_bhoot2000[at]yahoo.com writes:

- quote -

Yes.

- quote -

Yes, if you elect to treat the dividend as ordinary
income (if it's not already).

- quote -

Yes if short-term. No if long-term (unless you elect to
treat the LT gain as ordinary income).

- quote -

Yes.

- quote -

Since it's an LT gain, you'd have to elect to treat it as
ordinary income for it to count as ordinary income.

- quote -

On Schedule A.

- quote -

No!

- quote -

In the "Interest you paid" section of Sched A, along with
mortgage interest.

- quote -

No.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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Rich Carreiro wrote:
- quote -

OK, I understand that the investment expenses can be
deducted only against investment income. But do I need to
have investment income form the same source, or can it be
form another source? Or a different batch of the same
source? For example, I take a loan to exercise options.
Interest on loan payment is expense. Can I deduct it
against:

(a) interest income form BofA CD?
(b) Dividend on another stock or mutual fund?
(c) Stock / mutual fund capital gain (sale in the same year
as interest expense for NQSO)?
(d) Dividend on the just exercised NQSL options? (My
employer pays dividend on the stocks, but not on
options; stock is not public).
(e) What about investment income from sale of NQSO exercised
in previous years?

Where and how would I deduct it? By adjusting cost basis?
On schedule A, subject to 2% of AGI threshold? (this makes
it meaningless!).

- quote -

Is there any matching of the expense for investment "x" and
investment income from investment "y"?

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Rich Carreiro <rlcarr[at]animato.arlington.ma.us> wrote:
- quote -

Let me expand on Rich's answer:

You can use Form 4952 to list investment interest as well as
investment income. Investment interest in excess of
investment income cannot be used in the current year but can
be carried forward.

Investment income is basically interest, dividends and
capital gains subject to ordinary income tax.

But Form 4952 allows you to forego the favored tax treatment
for some or all qualified dividends and long term gains, and
allows you to treat this income as subject to ordinary
income tax, in order to allow you to deduct investment
interest.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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deja_bhoot2000[at]yahoo.com wrote:
- quote -

An increase in value is not investment income. Investment
income is income you derive from investment property. E.g.,
interest, dividends, royalties and capital gains. However,
note that if you treat capital gains or qualified dividends
as investment income, you can not use the lower capital
gains tax rates against that investment income.

- quote -

No. For more information see the discussion starting on
page 33 of IRS Pub 550 Investment Income & Expenses.
http://www.irs.gov/pub/irs-pdf/p550.pdf

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deja_bhoot2000[at]yahoo.com writes:

- quote -

Not unless you have investment income to offset against
it. Unrealized gain is not investment income.

- quote -

It's deductible in any year you have investment income (interest,
dividends, realized short-term gains, realized long-term gains
on which you elect to forfeit LT gain treatment) to offset
against it. No investment income, no deduction.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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A.G. Kalman wrote:
- quote -

Mr. Kalman, Thank you for the reply. I would like additional
clarification.

When I exercise the NQSO, you are right that the income is
wage/compensation, not investment income. However, from that
point onwards, assuming the stock value goes up, the
increase in value is investment income, which will be
realized at some point in future.

So, is the expense of interest deductible in this case?

Compare this with: I take (personal) loan from bank, buy IBM
stocks, and hold the stocks. Is the interest on loan
deductible? In the year the interest is paid, or in the year
the IBM stock is sold? Or never? (I would not take a loan to
buy stocks, but that's another issue.)

Bhoot

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deja_bhoot2000[at]yahoo.com wrote:

- quote -

Yes you may deduct the interest expense as investment
interest as long as you have corresponding investment
income. The income on the NQSO transaction is not
investment income. It is compensation.

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I have nonqualified stock options (NQSO) from my employer
that is vested. In order to exercise, I have to pay

-- the offering price (fair market value as of the time the
option was granted); PLUS
-- Fed income tax + SS + Medicare + CA SDI + CA taxes = about
45% on the "paper gain"

For example, if the option was granted at $10 and the current
price of stock is $50, I have to pay $10 + 45% of the
($50-$10) gain = $10 + $18 = $28 per share.

Company offers an arms-length loan at market interest rate
to help with this exercise. The interest rate would be
between 6.5% and 7.25% (depending upon credit rating).

Would this interest be deductible as investment expense on
Schedule A, if I itemize?

Bhoot

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