Home Mortgage Interest

• One of the most common interest expenses taxpayers are eligible to deduct is interest on a mortgage to purchase, construct or substantially improve a qualified home. A qualified home always includes your principal residence, which is the place you reside for a majority of the tax year, plus one additional home that you don't use to generate rental income or hold as an investment. However, the IRS will not treat either as a qualified home unless the mortgage lender takes a security interest in the property as collateral for repayment of the debt. To claim the deduction, you must elect to itemize your deductions on Schedule A. If you instead choose the standard deduction, the mortgage interest deduction is no longer available to you.
  
  

Credit Card Interest

• Using a credit card to make personal purchases, even if used as part of your financing for the purchase of a home, precludes you from claiming a deduction for the interest payments you make to your credit card company. The only time you can claim a deduction for the interest charges on your credit card is when you use it to make purchases for your business or to pay business expenses. For example, companies commonly open credit card accounts for use in the business. And as long as the purchases serve a business purpose, the interest that accrues on it is deductible. However, if you use a company credit card to make personal purchases, you must eliminate that interest from your business deduction.
  
  

Investment Interest Expense

• If you obtain a loan to purchase investment property, such as buying stocks on margin through your brokerage account, the IRS will allow you to deduct the interest expense. However, there are limitations on the amount you can deduct. You can only deduct the investment interest to the extent of the net investment income you report on a tax return.
  
  

Net Investment Income Calculation

• Your net investment income is equal to the profit and gains you recognize on your investments, less the expenses that directly relate to those investments, except for the interest. The investment expenses that relate to stock transactions, for example, include the cost of obtaining professional investment advice and the monthly maintenance fees your broker charges. Subtract these expenses from the profits you earn on the sale of stock and all dividend payments you receive. If the net result is income rather than losses, you can deduct interest up to the amount of your net income. If excess interest remains, you can carry it forward to future tax years.