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I am filing taxes for a family member and they have a sizable amount of investment income in 2021, as well as some margin interest. Both the internet and my tax software made it clear that I can deduct this margin interest on my federal return, but I can find no definitive answer to whether this applies to the Pennsylvania state return.

As the margin interest is over half the total investment income, this makes a substantial difference to our total tax liability. In such difficult times this isn't something we want to pay if we can help it, but I also don't want to get things wrong and have penalties accrue on such a large number.

Can margin interest be deducted on Pennsylvania state taxes?

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Disclaimer: I am not a PA tax expert...

Interest income is not deductible according the PA Department of Revenue:

In general, the deductions and exemptions used to calculate a taxpayer’s federal adjusted gross income or federal taxable income are not permitted in calculating the taxpayer’s Pennsylvania taxable income.

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Pennsylvania allows four deductions against income. Deductions are allowed for: Medical Savings Account contributions; Health Savings Account contributions; IRC Section 529 qualified Tuition Program contributions, and IRC Section 529A Pennsylvania ABLE Savings Account Program contributions.

The page explicitly lists Interest in general as not deductible. Since there's nothing that excludes Margin Interest or Investment Interest from this classification, I see nothing that would indicate that you can deduct it from PA state taxes.

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