Interest paid on Line of Credit funds used by someone other than my client

[dkh]

Client withdrew money from their Line of Credit to lend to someone.  This someone paid interest to the client and issued them a 1099-INT.  

 I do not know what to do with the interest the client paid on their LOC.   

I think it is not deductible. Client has interest income to report but cannot take the interest expense. 

[IRonMaN · Accepted solution]

Investment interest?

[dkh]

F4952.... of course !!     Which means it's useless because client can't itemize.

Thank you @IRonMaN .              

[IRonMaN]

You betcha!

[BobKamman]

But of course, relying on your advice the client is charging a higher interest rate than what is being paid, to make up for the tax owed. 

Right?

[dkh]

@BobKamman     "relying on your advice"    Hahahahaha  I don't have those kind of clients.  Mine like to show up with surprises.    However, the client is charging 2% more than they're paying.  Not sure I agree with lending to your employer, other than it maybe helps with job security. 

[abctax55]

Doesn't investment interest carryover if not used?

[dkh]

yes, unused amount carries forward.  Still doesn't help client if they can't itemize when it can be used.     

I need to educate client on tax implications of lending out money s/he is borrowing.