What is investment interest?

Investment interest generally refers to the interest paid on debts which are used for investment purposes and on the interest associated with a margin account (an investment account where you borrow money from the investment company to use for additional investments). Any investment interest you pay in a given year is generally deductible, although you can only claim an amount less than the total amount of your net investment income. This means that you cannot take any deduction if you had no investment income. On the other hand, if the amount of your investment interest was greater than your investment income, you can carry that extra amount over and claim it on the following year’s taxes.

The 2% reduction does not apply to any deductions for investment interest.