Taxes related to margin interest and stock investment losses?

I had purchased stocks using margin money in 2007. As a result of this I have paid approximately 2000 dollars in margin interest. When I file my taxes can I enter these 2000 dollars as an investment expense?

Also I had some losses in stocks in 2007. These were held for less than a year so they don't classify as a capital losses. Do I qualify to get tax deductions for these losses.

I read that there is a limit of 3000 dollars. Is this limit for margin interest and stock losses combined or separately.

Thanks in advance.

You can potentially claim the margin interest as "Investment Interest Expense" on Schedule A, depending on your tax situation.

I think you are mixed up on the "capital loss" thing. Losses from the sale of stock will be capital losses for you. It doesn't matter how long you held them. You must hold them for more than one year before you get the lower capital gains rates, but the gains/losses are capital in nature no matter the holding period.

And you are allowed to offset up to $3000 of other income with "Net Capital losses". This basically means that you first net all your gains and losses for the year. If you end up with more than 3000 in losses, than you can claim 3000 of the losses in the current year while carrying the remainder over into the next year.

For example:

You sell one stock and lose 10K.
Than sell another stock for 5K in gain.

You first net the two transactions for a net capital loss of 5K. You can use 3K of the 5K to offset other income this year and carry over the remaining 2K into future years. Meaning next year you have recognize more than 2K in gains before those gains become taxable.

The rules are slightly more complex in that you must first net Short term transactions, than net your long term transactions, before being allowed to net gains from one class with losses from another. This is to prevent you from using a long term loss to offset a short term gain (which is taxed at a higher rate) while recognizing a long term gain (again, taxed at a lower rate).

The investment interest expense rules can be complicated, so I would recommend using a pro for you taxes this year. Or maybe you could slip by with the right software.

Clear as mud??? Just how the IRS likes it. :)

Margin interest is handled separately. You can take a deduction up to the amount of investment income (first limit) on form 4952 and if you have any, it's an itemized deduction on schedule A.