> For the complete documentation index, see [llms.txt](https://advisorhub.syntheticfi.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://advisorhub.syntheticfi.com/product-learn-more/why-is-it-tax-deductible.md).

# Why is it tax deductible?

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## Deductible regardless of how the loan is used

SyntheticFi interest is generally treated as a capital loss under IRS Section 1256, so it's deductible regardless of how the loan is used.\* The loss splits 60% long-term and 40% short-term, custodians report it automatically on the 1099, and it's generally claimable each year, even on multi-year loans. Capital loss limitations apply.
{% endhint %}

Most loans barely let your client deduct anything. Mortgage interest is capped (currently at $750K). Margin loan interest is only deductible if the money buys more investments. SBLOC interest usually isn't deductible at all.

**SyntheticFi is different.** The "interest" isn't interest in the IRS sense, it's the loss on a Section 1256 options contract. That makes it generally deductible as a capital loss regardless of the use of the loan.\*

### A few things to know

* **The deduction is 60/40.** Section 1256 contracts get blended treatment: 60% of the loss counts as long-term, 40% as short-term, no matter how long the loan has been open.
* **Custodians report it automatically.** Schwab, Fidelity, and others include Section 1256 gains and losses on the standard consolidated 1099. TurboTax and any tax preparer can handle it without special work.
* **Multi-year loans deduct every year.** Because these contracts are marked to market at year-end, your client claims a capital loss each year equal to that year's accrued interest, even if the loan doesn't settle for years.

For a fuller explanation with worked examples and filing guidance, see [more on tax deductibility →](/product-deep-dive/more-on-tax-deductibility-examples-and-filing.md)

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## SyntheticFi does not provide tax advice

Tax outcomes depend on your client's individual situation, and tax law can change. Your client should confirm how the deduction applies with their own tax professional.
{% endhint %}

***

[\* Important Disclosures](/disclosures.md)


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