Fillable Form 4952 - Investment Interest Expense Deduction

Form 4952 (2015)

Page

Section references are to the Internal Revenue Code unless otherwise

Exception. A working interest in an oil or gas property that you held

noted.

directly or through an entity that did not limit your liability is property

held for investment, but only if you did not materially participate in the

Future Developments

activity.

For the latest information about developments related to Form 4952 and

Part II—Net Investment Income

its instructions, such as legislation enacted after they were published,

go to

Line 4a

Gross income from property held for investment includes income,

General Instructions

unless derived in the ordinary course of a trade or business, from

interest, ordinary dividends (except Alaska Permanent Fund dividends),

Purpose of Form

annuities, and royalties. Include investment income reported to you on

Use Form 4952 to figure the amount of investment interest expense you

Schedule K-1 from a partnership or an S corporation. Also include net

can deduct for 2015 and the amount you can carry forward to future

investment income from an estate or a trust.

years. Your investment interest expense deduction is limited to your net

Also include on line 4a (or 4d, if applicable) net passive income from a

investment income.

passive activity of a publicly traded partnership (as defined in section

For more information, see Pub. 550, Investment Income and

469(k)(2)). See Notice 88-75, 1988-2 C.B. 386, for details.

Expenses.

Net income from certain passive activities, such as rental of

Who Must File

substantially nondepreciable property, may have to be recharacterized

and included on line 4a. For details, see Pub. 925, Passive Activity and

If you are an individual, estate, or a trust, you must file Form 4952 to

At-Risk Rules, or Regulations section 1.469-2(f)(10).

claim a deduction for your investment interest expense.

If you are filing Form 8814, Parents’ Election To Report Child’s

Exception. You do not have to file Form 4952 if all of the following

Interest and Dividends, part or all of your child’s income may be

apply.

included on line 4a. See the instructions for Form 8814 for details.

• Your investment income from interest and ordinary dividends minus

Do not include on line 4a any net gain from the disposition of

any qualified dividends is more than your investment interest expense.

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property held for investment. Instead, enter it on line 4d.

• You do not have any other deductible investment expenses.

• You do not have any carryover of disallowed investment interest

expense from 2014.

CAUTION

Allocation of Interest Expense

Line 4b

Enter the portion of ordinary dividends included on line 4a that are

If you paid or accrued interest on a loan and used the loan proceeds for

more than one purpose, you may have to allocate the interest. This is

qualified dividends. For the definition of qualified dividends, see the

instructions for Form 1040, line 9b (or Form 1041, line 2b).

necessary because different rules apply to investment interest, personal

interest, trade or business interest, home mortgage interest, and passive

Line 4d

activity interest. See Pub. 535, Business Expenses.

Net gain from the disposition of property held for investment is the

Specific Instructions

excess, if any, of your total gains over your total losses from the

disposition of property held for investment. When figuring this amount,

Part I—Total Investment Interest Expense

include capital gain distributions from mutual funds and capital loss

carryovers.

Line 1

Line 4e

Enter the investment interest expense paid or accrued during the tax

Net capital gain from the disposition of property held for investment is

year, regardless of when you incurred the indebtedness. Investment

the excess, if any, of your net long-term capital gain over your net short-

interest expense is interest paid or accrued on a loan or part of a loan

term capital loss from the disposition of property held for investment.

that is allocable to property held for investment (as defined later).

Capital gain distributions from mutual funds are treated as long-term

Include investment interest expense reported to you on Schedule K-1

capital gains.

from a partnership or an S corporation. Include amortization of bond

premium on taxable bonds purchased after October 22, 1986, but

Note. If line 4e is more than zero and you enter an amount on line 4g,

before January 1, 1988, unless you elected to offset amortizable bond

see the Note in the line 4g instructions.

premium against the interest payments on the bond. A taxable bond is a

Line 4g

bond on which the interest is includible in gross income.

In general, qualified dividends and net capital gain from the disposition

Investment interest expense does not include any of the following:

of property held for investment are excluded from investment income.

• Home mortgage interest.

But you can elect to include part or all of these amounts in investment

• Interest expense that is properly allocable to a passive activity.

income.

Generally, a passive activity is any trade or business activity in which

▲

The qualified dividends and net capital gain that you elect to

you do not materially participate and any rental activity. See the

include in investment income on line 4g are not eligible to be

Instructions for Form 8582, Passive Activity Loss Limitations, for details.

taxed at the qualified dividends or capital gains tax rates. You

• Any interest expense that is capitalized, such as construction interest

should consider the tax effect of using the qualified dividends

CAUTION

subject to section 263A.

and capital gains tax rates before making this election. Once made, the

• Interest expense related to tax-exempt interest income under

election can be revoked only with IRS consent.

section 265.

To make the election, enter on line 4g the amount you elect to include

• Interest expense, disallowed under section 264, on indebtedness with

in investment income (do not enter more than the sum of lines 4b and

respect to life insurance, endowment, or annuity contracts issued after

4e). Also enter this amount on whichever of the following applies.

June 8, 1997, even if the proceeds were used to purchase any property

• The Qualified Dividends and Capital Gain Tax Worksheet, line 5, in the

held for investment.

Instructions for Form 1040.

Property held for investment. Property held for investment includes

• The Schedule D Tax Worksheet, line 3.

property that produces income, not derived in the ordinary course of a

• Schedule D (Form 1041), line 25.

trade or business, from interest, dividends, annuities, or royalties. It also

• The Qualified Dividends Tax Worksheet, line 3, in the Instructions for

includes property that produces gain or loss, not derived in the ordinary

Form 1041.

course of a trade or business, from the disposition of property that

produces these types of income or is held for investment. However, it

does not include an interest in a passive activity.

Form 4952 - Investment Interest Expense Deduction - 2015 Page 3

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