Curious why you would assume that overall interest and ordinary dividend income would be a small amount for taxpayers that use this strategy for part of their portfolio? Thanks.
I don't follow your question. The point of this post is to explain the inverse relationship between interest deductibility and short term capital losses.
I guess I'm not understanding the inverse relationship (except in cases of net STCG as a starting point).
The question is that on form 4952, why do you assume line 4c (and thus line 4h) are going to be small numbers? And why would increased STCLs reduce the deduction when lines 4e/4f will be zero regardless of the size of the STCL?
Even if you have some interest or dividends, STCLs offset short-term gains before contributing to line 4h. And typical TA LS strategies don’t throw off enough interest or dividend income to overcome that.
Since NII caps how much investment interest can be deducted, most investors won’t be able to deduct their interest expense.
So if a salesperson says, “Well, the interest is deductible,” they’re wrong unless the adviser/investor has planned to achieve that outcome (by electing to include LTCG in NII or timing other income).
Curious why you would assume that overall interest and ordinary dividend income would be a small amount for taxpayers that use this strategy for part of their portfolio? Thanks.
I don't follow your question. The point of this post is to explain the inverse relationship between interest deductibility and short term capital losses.
Simple numerical examples for 1 interest expense, 2 interest income, 3 ordinary dividends, 4 capital gains/losses would be helpful to illustrate.
I guess I'm not understanding the inverse relationship (except in cases of net STCG as a starting point). The question is that on form 4952, why do you assume line 4c (and thus line 4h) are going to be small numbers? And why would increased STCLs reduce the deduction when lines 4e/4f will be zero regardless of the size of the STCL?
Ah, I think I see what you’re saying.
Even if you have some interest or dividends, STCLs offset short-term gains before contributing to line 4h. And typical TA LS strategies don’t throw off enough interest or dividend income to overcome that.
Since NII caps how much investment interest can be deducted, most investors won’t be able to deduct their interest expense.
So if a salesperson says, “Well, the interest is deductible,” they’re wrong unless the adviser/investor has planned to achieve that outcome (by electing to include LTCG in NII or timing other income).
Does that help?