My_question_is: Canadian-specific
Subject: Interest deductibility when loan is in default or being
repaid by insurer.
Expert: taxman at centa.com
Date: Sunday January 21, 2007
Time: 03:00 AM -0500
QUESTION:
I borrowed a large sum of money from my credit cards and line of credit in
January 2006 to speculate on the stock market and lost big time. The
interest rates I'am being charged are pretty high , the lowest being 9% and
the highest currently charging 25.99%. I lost my job in March 2006 and since
then I am in default on some of these loans while other loans are covered by
involuntary unemployment insurance. I haven't made a single payment since
March 2006. The question is Can I deduct the interest that is payable on
these loans for the period March 2006 through December 31 2006 on line 221
of my 2006 tax return?
-----------------------------------------------------------
david ingram replies;
You are considered to be on a cash basis with a stock market investment.
If the stocks were pennies or precious metals or others that did not pay out
dividends, NO interest is deductible.
If the stock you bought was dividend paying and you bought it for earnings,
the interest paid (but not interest accrued) is deductible.
In both of these cases, money you lost is not deductible against other
income.
==========
If you were trading in puts and calls and options or day trading and the
only profit you could make was from the buying and selling, then you were
"in business" and any profit was taxable at full rates and any losses are
deductible on line 135 as a business loss.
goto www.centa.com - goto top left hand box and click on TAX Guide. Then
read the chapter on Capital Gains.
It is accurate with the exception that it does not go back to only 50% of
gains being taxable.
The reason that i am suggesting you read it, is that it will show you the
difference between capital gains and straight income (or loss).
====================
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