In my 1099, next to the Margin Interest line, there is a "Payment in Lieu Paid" number. In IB's presentation, it appears that it's some form of investment interest. https://www.interactivebrokers.com/webinars/Tax_Reporting_Stocks_Options.pdf Can I deduct it as an investment interest costs like margin interests? I don't have the trader tax status. Thanks.
If you are short and the borrowed shares pay a dividend, you have to pay the dividend in lieu. Rules differ by jurisdiction so this is tentative, but yes normally of course you can deduct that charge. I assume you should include the charge in calculating the net gain/loss on shorted stocks and not as an interest charge.
I'm in the same scenario, I was trying it out in my tax software, as an individual line item on Form 8949. I don't quite know how to do it properly, by changing the the cost basis and/or adding a negative adjustment with code of O (Other), in order for my net gain/loss to decrease by the dividend I paid out. Here's what the IRS Publication 560 says: If you close the short sale by the 45th day after the date of the short sale (1 year or less in the case of an extraordinary dividend), you cannot deduct the payment in lieu of the dividend you make to the lender. Instead, you must increase the basis of the stock used to close the short sale by that amount. Form 8949 Proceeds Cost Basis Code(s) Adjustment Gain or (loss)