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

The deductibility of interest paid on a loan used to purchase investments, such as stocks or mutual funds, is governed by specific rules regarding Investment Interest Expense (IIE) under the Internal Revenue Code. Generally, you cannot deduct this interest as a standard personal interest expense (which was eliminated by the Tax Cuts and Jobs Act of 2017).

### Investment Interest Expense Deduction Rules

If you borrow money specifically to purchase or carry property held for investment (stocks, bonds, mutual funds, etc.), the interest paid on that loan is considered Investment Interest Expense (IIE). This expense is deductible, but only to the extent of your Net Investment Income (NII) for the tax year 2025.

Key Definitions:

• Investment Interest Expense (IIE): Interest paid or accrued during the tax year on debt properly allocable to property held for investment. This includes interest on margin loans from a brokerage or a personal loan explicitly used for investment purchases.
• Net Investment Income (NII): This is the total of your gross investment income (interest, dividends, royalties, short-term capital gains from investments) minus the investment expenses (deductible under the miscellaneous itemized deduction rules, though these are generally suspended through 2025).

The Limitation: Your deduction for IIE in 2025 cannot exceed your NII for that year. Any disallowed IIE is carried forward indefinitely to future tax years, where it can be deducted against NII in those subsequent years.

### Personal Loans vs. Margin Loans

• Margin Loans: Interest on margin loans from a broker is automatically treated as IIE and is tracked by the brokerage on Form 1099-INT or a similar statement.
• Personal Loans: If you use a standard personal loan (not secured by the investments themselves) to buy stocks, you must be able to clearly establish and trace the use of those specific loan proceeds for investment purposes. If the funds are commingled with funds used for personal expenses, the IRS may disallow the deduction entirely because the debt cannot be clearly allocated to investment property.

### Comparison Table: Deductibility

Filing Requirement: If you have Investment Interest Expense, you must file Form 4952, Investment Interest Expense Deduction, to calculate the allowable deduction and any carryover amount. This deduction is taken only if you itemize deductions on Schedule A.

If your investment income is low or negative in 2025, your deduction for the loan interest will likely be limited or disallowed entirely for the current year.