Form 4952 Investment Interest Expense Deduction

Form

4952

OMB No. 1545-0191

Investment Interest Expense Deduction

Department of the Treasury
Internal Revenue Service (99)

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2011

Attachment
Sequence No. 51

Attach to your tax return.

Identifying number

Name(s) shown on return

Part I
1
2
3

Total Investment Interest Expense

Investment interest expense paid or accrued in 2011 (see instructions)
Disallowed investment interest expense from 2010 Form 4952, line 7 .
Total investment interest expense. Add lines 1 and 2 . . . . . .

Part II

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1
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3

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4c

Net Investment Income

4a

Gross income from property held for investment (excluding any net
gain from the disposition of property held for investment) . . .
4a
b Qualified dividends included on line 4a . . . . . . . . .
4b
c Subtract line 4b from line 4a
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d Net gain from the disposition of property held for investment . .
4d
e Enter the smaller of line 4d or your net capital gain from the
disposition of property held for investment (see instructions)
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4e
f Subtract line 4e from line 4d
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g Enter the amount from lines 4b and 4e that you elect to include in investment
instructions) . . . . . . . . . . . . . . . . . . . . . . . .
h Investment income. Add lines 4c, 4f, and 4g . . . . . . . . . . . . .
5
Investment expenses (see instructions) . . . . . . . . . . . . . . .
Net investment income. Subtract line 5 from line 4h. If zero or less, enter -0- . .
6

Part III
7
8

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income (see
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4f
4g
4h
5
6

Investment Interest Expense Deduction

Disallowed investment interest expense to be carried forward to 2012. Subtract line 6 from
line 3. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . .
Investment interest expense deduction. Enter the smaller of line 3 or 6. See instructions . .

General Instructions

rules apply to investment interest, personal
interest, trade or business interest, home
mortgage interest, and passive activity
interest. See Pub. 535, Business Expenses.

Purpose of Form

Specific Instructions

Section references are to the Internal
Revenue Code unless otherwise noted.

Use Form 4952 to figure the amount of
investment interest expense you can deduct
for 2011 and the amount you can carry
forward to future years. Your investment
interest expense deduction is limited to your
net investment income.
For more information, see Pub. 550,
Investment Income and Expenses.

Who Must File
If you are an individual, estate, or a trust, you
must file Form 4952 to claim a deduction for
your investment interest expense.
Exception. You do not have to file Form
4952 if all of the following apply.
• Your investment income from interest and
ordinary dividends minus any qualified
dividends is more than your investment
interest expense.
• You do not have any other deductible
investment expenses.
• You do not have any carryover of
disallowed investment interest expense from
2010.

Allocation of Interest
Expense
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 necessary because different

Part I—Total Investment
Interest Expense
Line 1
Enter the investment interest expense paid or
accrued during the tax year, regardless of
when you incurred the indebtedness.
Investment interest expense is interest paid or
accrued on a loan or part of a loan that is
allocable to property held for investment (as
defined on this page).
Include investment interest expense
reported to you on Schedule K-1 from a
partnership or an S corporation. Include
amortization of bond premium on taxable
bonds purchased after October 22, 1986, but
before January 1, 1988, unless you elected to
offset amortizable bond premium against the
interest payments on the bond. A taxable
bond is a bond on which the interest is
includible in gross income.
Investment interest expense does not
include any of the following:
• Home mortgage interest.
• Interest expense that is properly allocable
to a passive activity. Generally, a passive
activity is any trade or business activity in
which you do not materially participate and
any rental activity. See the Instructions for
Form 8582, Passive Activity Loss Limitations,
for details.

For Paperwork Reduction Act Notice, see back of form.

Cat. No. 13177Y

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• Any interest expense that is capitalized,
such as construction interest subject to
section 263A.
• Interest expense related to tax-exempt
interest income under section 265.
• Interest expense, disallowed under section
264, on indebtedness with respect to life
insurance, endowment, or annuity contracts
issued after June 8, 1997, even if the
proceeds were used to purchase any property
held for investment.
Property held for investment. Property held
for investment includes property that
produces income, not derived in the ordinary
course of a trade or business, from interest,
dividends, annuities, or royalties. It also
includes property that produces gain or loss,
not derived in the ordinary 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.
Exception. A working interest in an oil or
gas property that you held 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 activity.

Part II—Net Investment
Income
Line 4a

Gross income from property held for
investment includes income, unless derived in
the ordinary course of a trade or business,
from interest, ordinary dividends (except
Alaska Permanent Fund dividends), annuities,
and royalties. Include investment income
Form 4952 (2011)

Form 4952 (2011)

reported to you on Schedule K-1 from a
partnership or an S corporation. Also include
net investment income from an estate or a
trust.
Also include on line 4a (or 4d, if applicable)
net passive income from a passive activity of
a publicly traded partnership (as defined in
section 469(k)(2)). See Notice 88-75, 1988-2
C.B. 386, for details.
Net income from certain passive activities,
such as rental of substantially nondepreciable
property, may have to be recharacterized and
included on line 4a. For details, see Pub. 925,
Passive Activity and At-Risk Rules, or
Regulations section 1.469-2(f)(10).
If you are filing Form 8814, Parents’
Election To Report Child’s Interest and
Dividends, part or all of your child’s income
may be included on line 4a. See the
instructions for Form 8814 for details.

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CAUTION

Do not include on line 4a any net
gain from the disposition of
property held for investment.
Instead, enter it on line 4d.

Line 4b
Enter the portion of ordinary dividends
included on line 4a that are qualified
dividends. For the definition of qualified
dividends, see the instructions for Form 1040,
line 9b (or Form 1041, line 2b).

Line 4d
Net gain from the disposition of property held
for investment is the excess, if any, of your
total gains over your total losses from the
disposition of property held for investment.
When figuring this amount, include capital
gain distributions from mutual funds and
capital loss carryovers.

Line 4e
Net capital gain from the disposition of
property held for investment is the excess, if
any, of your net long-term capital gain over
your net short-term capital loss from the
disposition of property held for investment.
Capital gain distributions from mutual funds
are treated as long-term capital gains.
Note. If line 4e is more than zero and you
enter an amount on line 4g, see the Note in
the line 4g instructions.

Line 4g
In general, qualified dividends and net capital
gain from the disposition of property held for
investment are excluded from investment
income. But you can elect to include part or
all of these amounts in investment income.
The qualified dividends and net
capital gain that you elect to
include in investment income on
CAUTION line 4g are not eligible to be taxed
at the qualified dividends or
capital gains tax rates. You should consider
the tax effect of using the qualified dividends
and capital gains tax rates before making this
election. Once made, the election can be
revoked only with IRS consent.

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Page

To make the election, enter on line 4g the
amount you elect to include in investment
income (do not enter more than the sum of
lines 4b and 4e). Also enter this amount on
whichever of the following applies.
• The Qualified Dividends and Capital Gain
Tax Worksheet, line 5, in the Instructions for
Form 1040.
• The Schedule D Tax Worksheet, line 3.
• Schedule D (Form 1041), line 21.
• The Qualified Dividends Tax Worksheet,
line 3, in the Instructions for Form 1041.
Do not reduce the amount of qualified
dividends on Form 1040, line 9b (or Form
1041, line 2b(2)), by any part of the amount
on line 4g.
Note. The amount on line 4g is generally
treated as being attributable first to net
capital gain from property held for investment
(line 4e), and then to qualified dividends (line
4b). This treatment results in the least tax
being figured for Form 1040, line 44 (or Form
1041, Schedule G, line 1a). However, you can
treat less of the amount on line 4e as
attributable to line 4g and more to line 4b.
You may want to do this if you are filing Form
1116, Foreign Tax Credit, as your tax after
credits may be lower in certain cases. To do
so, enter on the dotted line next to line 4e
“Elec.” and the part of line 4e that you elect to
treat as being attributable to line 4g (do not
enter less than the excess of line 4g over line
4b). You will use this smaller amount instead
of the amount on line 4e when figuring your
tax.
Generally, you must make this election on
a timely filed return, including extensions.
However, if you timely filed your return
without making the election, you can make
the election on an amended return filed within
6 months of the due date of your return
(excluding extensions). Write “Filed pursuant
to section 301.9100-2” on the amended
return and file it at the same place you filed
the original return.

Line 5
Investment expenses are your allowed
deductions, other than interest expense,
directly connected with the production of
investment income. For example, depreciation
or depletion allowed on assets that produce
investment income is an investment expense.
Include investment expenses reported to
you on Schedule K-1 from a partnership or an
S corporation.
Investment expenses do not include any
deductions used in determining your income
or loss from a passive activity.
If you have investment expenses that are
included as a miscellaneous itemized
deduction on Schedule A (Form 1040), line 23,
the 2% adjusted gross income limitation on
Schedule A (Form 1040), line 26, may reduce
the amount you must include on Form 4952,
line 5. Include on line 5 the smaller of: (a) the
investment expenses included on Schedule A
(Form 1040), line 23, or (b) the total on
Schedule A (Form 1040), line 27.

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Part III—Investment Interest
Expense Deduction
Line 8
Individuals. Generally, enter the amount from
line 8 (excluding any amount included on
Form 6198, line 4—see below) on Schedule A
(Form 1040), line 14, even if all or part of it is
attributable to a partnership or an
S corporation. However, if any part of the
interest expense is attributable to royalties,
enter that part on Schedule E (Form 1040).
Also, if any part of the interest is attributable
to a trade or business that is not a passive
activity, enter that part on the schedule where
you report other expenses for that trade or
business.
Estates and trusts. Enter the amount from
line 8 (excluding any amount included on
Form 6198, line 4—see below) on Form 1041,
line 10. However, if any part of the interest is
attributable to a trade or business that is not a
passive activity, enter that part on the
schedule where you report other expenses for
that trade or business.
Form 6198. If any of your deductible
investment interest expense is attributable to
an activity for which you are not at risk, you
must also use Form 6198, At-Risk Limitations,
to figure your deductible investment interest
expense. Include the part attributable to the
at-risk activity on Form 6198, line 4.
Alternative minimum tax (AMT). Deductible
interest expense may be an adjustment for
the AMT. For details, see Form 6251,
Alternative Minimum Tax—Individuals or
Schedule I (Form 1041).
Paperwork Reduction Act Notice. We ask
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form will vary depending on individual
circumstances. The estimated burden for
individual taxpayers filing this form is
approved under OMB control number
1545-0074 and is included in the estimates
shown in the instructions for their individual
income tax return. The estimated burden for
all other taxpayers who file this form is shown
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Preparing the form, 24 min.; and Copying,
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If you have comments concerning the
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