Mortgage Interest or Investment Interest Expense Deduction?

[Ephesians3-14]

My client borrowed $500,000 from a bank and pledged his stocks/bonds as collateral. The proceeds were used to build a new home. He's asking me if he can deduct the interest on the loan as mortgage interest. I think the answer is no because it's not qualified mortgage indebtedness - needs to be secured by the home, which the loan was not.

He's now asking me if he can deduct it as margin interest (or investment interest expense) on Form 4952. Is that a possibility?

[dascpa]

You are correct with one added item.  A mortgage must not only be secured by the real estate but it also must be recorded with the court.

[rbynaker]

There are some special rules related to construction loans.  You should read through the regs to see what exceptions may apply to the general rules that we all know and love. 🙂

https://www.law.cornell.edu/cfr/text/26/1.163-10T

See if (p)(5) helps you any.

[Ephesians3-14]

So no possibility to write off the interest on Form 4952?