Deductible Interest Tracker

Credit Account Balances

Your credit account balance—what you owe on your HELOC or line of credit—is split into components that determine which interest is tax-deductible. Understanding these components is key to understanding how the app tracks your interest.

The Big Picture

Your total credit balance breaks down into two main categories:

Deductible Debt — The portion connected to investing. Interest on this debt is intended to be tax-deductible.

Non-Deductible Debt — The portion not connected to investing. Interest on this debt cannot be claimed as a tax deduction.

Each category further breaks down into principal (the amount borrowed) and outstanding interest (interest charged but not yet paid).

Deductible Debt Components

Invested Principal

This is borrowed money currently funding securities in your brokerage. It's the clearest form of deductible debt—money borrowed and directly invested.

Increases when:

  • You record an Investment Purchase using borrowed cash
  • The borrowed portion of an Investment Purchase becomes invested principal

Decreases when:

  • You record an Investment Sale (borrowed cost returns as uninvested principal)
  • You record an Investment Distribution return of capital
  • You record a Credit Payment (proportional reduction)

Example: You borrow $10,000 and buy ETFs worth $9,500. Your invested principal is $9,500.

Capitalized Deductible Interest

When you pay deductible interest by capitalizing (borrowing more to pay it), the new debt is classified as capitalized deductible interest. Since the original interest was deductible, this new principal is too.

Increases when:

  • You record Interest Capitalization of outstanding eligible interest

Decreases when:

  • You record a Credit Payment (proportional reduction)

Example: You capitalize $100 of deductible interest. Your capitalized deductible interest increases by $100.

Outstanding Eligible Interest

This is deductible interest that your lender has charged but you haven't paid yet. It's not yet deductible for tax purposes—interest becomes deductible when paid.

Increases when:

  • You record an Interest Charge (the deductible portion)

Decreases when:

  • You make a Credit Payment that covers interest
  • You record Interest Capitalization

Example: Your monthly statement shows $200 interest, of which $160 is eligible. Your outstanding eligible interest increases by $160.

Non-Deductible Debt Components

Uninvested Principal

This is borrowed money sitting as cash in your brokerage—borrowed for investing but not yet deployed into securities.

Why is it non-deductible? Technically, interest on uninvested principal can be deductible if you have a genuine intention to invest and are actively doing so. The app classifies it as non-deductible to be conservative. If you're confident about your investing timeline, you may choose to claim this interest, but consult a tax professional.

Increases when:

  • You transfer borrowed funds to your brokerage (Borrowing To Invest)
  • Borrowed cost returns from Investment Sale or Investment Distribution

Decreases when:

  • You record an Investment Purchase (moves to invested principal)
  • You record a Brokerage Cash Withdrawal for personal use (moves to personal-use principal)
  • You record a Credit Payment (proportional reduction)

Key relationship: Uninvested principal equals borrowed cash in your brokerage. They're the same money viewed from different perspectives.

Personal-use Principal

This is money borrowed for non-investment purposes. Interest on this portion is clearly not deductible.

Increases when:

  • You borrow for personal use (Borrowing For Personal Use)
  • You record a Brokerage Cash Withdrawal (the withdrawn borrowed amount)

Decreases when:

  • You record a Credit Payment (proportional reduction)

Example: You borrow $5,000 for home repairs. Your personal-use principal increases by $5,000.

Capitalized Non-Deductible Interest

When you capitalize non-deductible interest, the new debt is classified as capitalized non-deductible interest.

Increases when:

  • You record Interest Capitalization of outstanding non-eligible interest

Decreases when:

  • You record a Credit Payment (proportional reduction)

Outstanding Non-Eligible Interest

Non-deductible interest charged but not yet paid.

Increases when:

  • You record an Interest Charge (the non-deductible portion)

Decreases when:

  • You make a Credit Payment that covers interest
  • You record Interest Capitalization

How It All Fits Together

Your total credit balance is:

Total Debt = Deductible Principal + Non-Deductible Principal + Outstanding Interest

Where:

  • Deductible Principal = Invested Principal + Capitalized Deductible Interest
  • Non-Deductible Principal = Uninvested Principal + Personal-use Principal + Capitalized Non-Deductible Interest
  • Outstanding Interest = Outstanding Eligible + Outstanding Non-Eligible

The app calculates a deductible percentage:

Deductible % = Deductible Debt / Total Debt

When your lender charges interest, approximately this percentage of the charge is deductible (the actual calculation uses time-weighted averages).

Balance Relationships

Several balances are linked:

Invested Principal = Sum of Borrowed Cost Bases The total borrowed portion allocated to your securities equals your invested principal. If you have three holdings with borrowed costs of $3,000, $4,000, and $2,000, your invested principal is $9,000.

Uninvested Principal = Borrowed Cash in Brokerage These are the same money—borrowed funds waiting to be invested.

Total Credit Balance = Total Debt Everything adds up to what you owe.

Reading Your Dashboard

Your dashboard shows these balances in a hierarchical view:

Credit Balance: $XX,XXX
├── Deductible Debt: $XX,XXX (XX%)
│   ├── Invested Principal: $X,XXX
│   ├── Capitalized Deductible Interest: $XXX
│   └── Outstanding Eligible Interest: $XXX
└── Non-Deductible Debt: $X,XXX (XX%)
    ├── Personal-use Principal: $X,XXX
    ├── Uninvested Principal: $X,XXX
    ├── Capitalized Non-Deductible Interest: $XXX
    └── Outstanding Non-Eligible Interest: $XXX

The percentages show what portion of your debt is deductible, which directly relates to what portion of your interest payments are deductible.

Practical Implications

To maximize deductible interest:

  • Keep borrowed money invested (minimize uninvested principal)
  • Avoid borrowing for personal use on the same credit line
  • When you sell or receive RoC, consider reinvesting the returned borrowed cash

To maintain clean records:

  • Record all borrowing, specifying whether for investment or personal use
  • Record all purchases with accurate borrowed amounts
  • Record all sales and distributions
  • Record all Interest Charge and Credit Payment events

What affects your deductible percentage:

  • Investment Purchase: increases invested principal, improves ratio
  • Investment Sale: decreases invested principal (though borrowed cash returns)
  • Borrowing For Personal Use: increases non-deductible, worsens ratio
  • Credit Payment: proportional, no change to ratio
  • Brokerage Cash Withdrawal: converts uninvested to personal-use, worsens ratio