I'm interested in borrowing money from one of my credit cards to invest. Yes, I know how that sounds, and I'm aware of the risks; that is not what this question is about; I'm only interested in the tax aspects of this.

My broker charges around 8% interest for investing with margin. Over the long term, I don't think I could get returns higher than 8% to justify such a high interest rate.

I have a lot of dormant credit cards that every once in a while send me offers that allow me to cash out the credit limit on the card for a 3% fee and 0% interest for a year. That is a much cheaper option than my broker's margin offering.

The question is, if I use that cash to invest, would that 3% fee be deductible from my short-term or long-term capital gains at tax time? If so, how would it be applied? Short-term capital gains first? Long-term capital gains first? If I choose to invest that money in relatively safe investments like bonds, the deductible vs not deductible question might be the deciding factor on profitability vs not profitability in the end.

  • @ChrisW.Rea Tag added. United States.
    – user19035
    Commented Mar 4, 2020 at 19:29
  • 1
    Investment interest is an itemized deduction. Do you already itemize deductions?
    – D Stanley
    Commented Mar 4, 2020 at 19:43
  • 1
    @DStanley I do not. My itemized deductions won't ever get anywhere near the $12k standard deduction. I always assumed investment interest could be deducted straight out of capital gains, like a business expense could be deducted by a self-employed individual straight out of their business income; not through itemized deductions. Are you saying my assumption was completely wrong?
    – user19035
    Commented Mar 4, 2020 at 19:55

1 Answer 1


If I use that cash to invest, would that 3% fee be deductible from my short-term or long-term capital gains at tax time?

Not directly. According to IRS topic 505 (emphasis added), interest expense might be an itemized deduction :

Types of interest deductible as itemized deductions on Schedule A (Form 1040 or 1040-SR, Itemized Deductions (PDF) include:

  • Investment interest (limited to your net investment income) and
  • Qualified mortgage interest including points (if you're the buyer); see below.

Types of interest deductible elsewhere on the return include:

  • Student loan interest as an adjustment to income on Form 1040, U.S. Individual Income Tax Return (PDF) or Form 1040-SR, U.S. Tax Return for Seniors (PDF). For more information, refer to Topic No. 456, Publication 970, Tax Benefits for Education (PDF) and Can I Claim a Deduction for Student Loan Interest?
  • Non-farm business interest. See Publication 334, Tax Guide for Small Business and Publication 535, Business Expenses
  • Farm business interest. See Publication 225, Farmer's Tax Guide and Publication 535
  • Interest incurred to produce rents or royalties (this may be limited). See Publication 527, Residential Rental Property and Publication 535

So if you do not itemize deductions, then the interest will be of no benefit to you tax-wise.

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