Can I deduct the interest paid on a personal loan I took out to purchase stocks or mutual funds in 2025?

Whether you can deduct the interest paid on a loan used to purchase stocks or mutual funds in 2025 depends entirely on how the loan is structured and how the interest is classified by the IRS. A standard personal loan taken out for investment purposes is treated differently than a traditional margin loan.

### Investment Interest Expense Limit

Interest paid on debt used to purchase or carry property held for investment (which includes stocks, bonds, and mutual funds) is classified as Investment Interest Expense (IIE). This expense is deductible, but only to the extent of your Net Investment Income (NII) for the tax year.

Net Investment Income (NII) includes:

• Taxable interest income
• Ordinary dividends
• Short-term capital gains
• Net long-term capital gains (unless you elect to treat them as ordinary income to increase the NII limit)

This deduction is claimed on Form 4952, Investment Interest Expense Deduction.

Example: If you paid USD 5,000 in interest on a personal loan used to buy stocks, but your NII for 2025 is only USD 3,000, you can only deduct USD 3,000 of the interest this year. The remaining USD 2,000 of disallowed interest expense can generally be carried forward indefinitely to future tax years, where it can be deducted against future NII.

### Personal Loans vs. Margin Loans

• Margin Loans: Interest paid on loans from a broker to purchase securities (margin loans) is almost always treated as IIE and subject to the NII limitation.
• Personal Loans (Unsecured): If you take out an unsecured personal loan from a bank or lender specifically to buy investments, the interest is also generally treated as IIE subject to the NII limitation, provided the lender tracks the loan usage or you can clearly document the funds were used solely for investment purposes.

### When Interest is NOT Deductible

Crucially, interest paid on debt used for personal consumption (like credit card interest, or interest on a loan used for a vacation or non-investment purchase) is not deductible in 2025, as the deduction for personal interest was generally eliminated by the Tax Cuts and Jobs Act (TCJA).

If the loan proceeds were used to purchase assets that do not generate investment income (like purchasing collectibles or for general living expenses), the interest is non-deductible personal interest.

Summary for 2025: Interest on a loan used to buy stocks is deductible, but only up to the amount of your investment income. If you have zero investment income, you cannot deduct the interest in the current year.

IRS Reference: Publication 550, Investment Income and Expenses, details the rules for Investment Interest Expense.