Form 4952 Investment Interest Expense Deduction OMB No. 1545-0191 2011 Department of the Treasury Attachment Internal Revenue Service (99) ▶ Attach to your tax return. Sequence No. 51 Name(s) shown on return Identifying number Part I Total Investment Interest Expense 1 Investment interest expense paid or accrued in 2011 (see instructions) . . . . . . . . 1 2 Disallowed investment interest expense from 2010 Form 4952, line 7 . . . . . . . . . 2 3 Total investment interest expense. Add lines 1 and 2 . . . . . . . . . . . . . . 3 Part II 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 . . . . . . . . . . . . . . . . . . . . . . 4c 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) . 4e f Subtract line 4e from line 4d . . . . . . . . . . . . . . . . . . . . . . 4f g Enter the amount from lines 4b and 4e that you elect to include in investment income (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4g h Investment income. Add lines 4c, 4f, and 4g . . . . . . . . . . . . . . . . . 4h 5 Investment expenses (see instructions) . . . . . . . . . . . . . . . . . . . 5 6 Net investment income. Subtract line 5 from line 4h. If zero or less, enter -0- . . . . . . 6 Part III Investment Interest Expense Deduction 7 Disallowed investment interest expense to be carried forward to 2012. Subtract line 6 from line 3. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . 7 8 Investment interest expense deduction. Enter the smaller of line 3 or 6. See instructions . . 8 Section references are to the Internal rules apply to investment interest, personal • Any interest expense that is capitalized, Revenue Code unless otherwise noted. interest, trade or business interest, home such as construction interest subject to mortgage interest, and passive activity section 263A. General Instructions interest. See Pub. 535, Business Expenses. • Interest expense related to tax-exempt interest income under section 265. Purpose of Form Specific Instructions • Interest expense, disallowed under section Use Form 4952 to figure the amount of 264, on indebtedness with respect to life investment interest expense you can deduct Part I—Total Investment insurance, endowment, or annuity contracts for 2011 and the amount you can carry forward to future years. Your investment Interest Expense issued after June 8, 1997, even if the proceeds were used to purchase any property interest expense deduction is limited to your Line 1 held for investment. net investment income. Enter the investment interest expense paid or Property held for investment. Property held For more information, see Pub. 550, accrued during the tax year, regardless of for investment includes property that Investment Income and Expenses. when you incurred the indebtedness. produces income, not derived in the ordinary Investment interest expense is interest paid or course of a trade or business, from interest, Who Must File accrued on a loan or part of a loan that is dividends, annuities, or royalties. It also If you are an individual, estate, or a trust, you allocable to property held for investment (as includes property that produces gain or loss, must file Form 4952 to claim a deduction for defined on this page). not derived in the ordinary course of a trade your investment interest expense. Include investment interest expense or business, from the disposition of property reported to you on Schedule K-1 from a that produces these types of income or is Exception. You do not have to file Form partnership or an S corporation. Include held for investment. However, it does not 4952 if all of the following apply. amortization of bond premium on taxable include an interest in a passive activity. • Your investment income from interest and ordinary dividends minus any qualified bonds purchased after October 22, 1986, but Exception. A working interest in an oil or dividends is more than your investment before January 1, 1988, unless you elected to gas property that you held directly or through interest expense. offset amortizable bond premium against the an entity that did not limit your liability is • You do not have any other deductible interest payments on the bond. A taxable property held for investment, but only if you investment expenses. bond is a bond on which the interest is did not materially participate in the activity. • You do not have any carryover of includible in gross income. disallowed investment interest expense from Investment interest expense does not Part II—Net Investment 2010. include any of the following: Income • Home mortgage interest. Line 4a Allocation of Interest • Interest expense that is properly allocable Expense to a passive activity. Generally, a passive Gross income from property held for investment includes income, unless derived in If you paid or accrued interest on a loan and activity is any trade or business activity in the ordinary course of a trade or business, used the loan proceeds for more than one which you do not materially participate and from interest, ordinary dividends (except purpose, you may have to allocate the any rental activity. See the Instructions for Form 8582, Passive Activity Loss Limitations, Alaska Permanent Fund dividends), annuities, interest. This is necessary because different and royalties. Include investment income for details. For Paperwork Reduction Act Notice, see back of form. Cat. No. 13177Y Form 4952 (2011) Form 4952 (2011) Page 2 reported to you on Schedule K-1 from a To make the election, enter on line 4g the Part III—Investment Interest partnership or an S corporation. Also include amount you elect to include in investment net investment income from an estate or a income (do not enter more than the sum of Expense Deduction trust. lines 4b and 4e). Also enter this amount on whichever of the following applies. Line 8 Also include on line 4a (or 4d, if applicable) net passive income from a passive activity of • The Qualified Dividends and Capital Gain Individuals. Generally, enter the amount from a publicly traded partnership (as defined in Tax Worksheet, line 5, in the Instructions for line 8 (excluding any amount included on section 469(k)(2)). See Notice 88-75, 1988-2 Form 1040. Form 6198, line 4—see below) on Schedule A C.B. 386, for details. • The Schedule D Tax Worksheet, line 3. (Form 1040), line 14, even if all or part of it is attributable to a partnership or an Net income from certain passive activities, • Schedule D (Form 1041), line 21. S corporation. However, if any part of the such as rental of substantially nondepreciable • The Qualified Dividends Tax Worksheet, interest expense is attributable to royalties, property, may have to be recharacterized and line 3, in the Instructions for Form 1041. enter that part on Schedule E (Form 1040). included on line 4a. For details, see Pub. 925, Do not reduce the amount of qualified Also, if any part of the interest is attributable Passive Activity and At-Risk Rules, or dividends on Form 1040, line 9b (or Form to a trade or business that is not a passive Regulations section 1.469-2(f)(10). 1041, line 2b(2)), by any part of the amount activity, enter that part on the schedule where If you are filing Form 8814, Parents’ on line 4g. you report other expenses for that trade or Election To Report Child’s Interest and business. Dividends, part or all of your child’s income Note. The amount on line 4g is generally Estates and trusts. Enter the amount from may be included on line 4a. See the treated as being attributable first to net line 8 (excluding any amount included on instructions for Form 8814 for details. capital gain from property held for investment Form 6198, line 4—see below) on Form 1041, Do not include on line 4a any net (line 4e), and then to qualified dividends (line line 10. However, if any part of the interest is ▲ ! CAUTION gain from the disposition of property held for investment. Instead, enter it on line 4d. 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 attributable to a trade or business that is not a passive activity, enter that part on the schedule where you report other expenses for treat less of the amount on line 4e as that trade or business. Line 4b attributable to line 4g and more to line 4b. Form 6198. If any of your deductible Enter the portion of ordinary dividends You may want to do this if you are filing Form investment interest expense is attributable to included on line 4a that are qualified 1116, Foreign Tax Credit, as your tax after an activity for which you are not at risk, you dividends. For the definition of qualified credits may be lower in certain cases. To do must also use Form 6198, At-Risk Limitations, dividends, see the instructions for Form 1040, so, enter on the dotted line next to line 4e to figure your deductible investment interest line 9b (or Form 1041, line 2b). “Elec.” and the part of line 4e that you elect to expense. Include the part attributable to the treat as being attributable to line 4g (do not at-risk activity on Form 6198, line 4. Line 4d enter less than the excess of line 4g over line Alternative minimum tax (AMT). Deductible 4b). You will use this smaller amount instead interest expense may be an adjustment for Net gain from the disposition of property held of the amount on line 4e when figuring your the AMT. For details, see Form 6251, for investment is the excess, if any, of your tax. Alternative Minimum Tax—Individuals or total gains over your total losses from the disposition of property held for investment. Schedule I (Form 1041). When figuring this amount, include capital Generally, you must make this election on gain distributions from mutual funds and a timely filed return, including extensions. However, if you timely filed your return Paperwork Reduction Act Notice. We ask capital loss carryovers. without making the election, you can make for the information on this form to carry out Line 4e the election on an amended return filed within the Internal Revenue laws of the United 6 months of the due date of your return States. You are required to give us the Net capital gain from the disposition of information. We need it to ensure that you are property held for investment is the excess, if (excluding extensions). Write “Filed pursuant to section 301.9100-2” on the amended complying with these laws and to allow us to any, of your net long-term capital gain over figure and collect the right amount of tax. your net short-term capital loss from the return and file it at the same place you filed the original return. You are not required to provide the disposition of property held for investment. information requested on a form that is Capital gain distributions from mutual funds Line 5 subject to the Paperwork Reduction Act are treated as long-term capital gains. unless the form displays a valid OMB control Investment expenses are your allowed Note. If line 4e is more than zero and you number. Books or records relating to a form deductions, other than interest expense, enter an amount on line 4g, see the Note in or its instructions must be retained as long as directly connected with the production of the line 4g instructions. their contents may become material in the investment income. For example, depreciation or depletion allowed on assets that produce administration of any Internal Revenue law. Line 4g Generally, tax returns and return information investment income is an investment expense. In general, qualified dividends and net capital are confidential, as required by section 6103. Include investment expenses reported to gain from the disposition of property held for The time needed to complete and file this you on Schedule K-1 from a partnership or an investment are excluded from investment form will vary depending on individual S corporation. income. But you can elect to include part or circumstances. The estimated burden for all of these amounts in investment income. Investment expenses do not include any individual taxpayers filing this form is deductions used in determining your income The qualified dividends and net approved under OMB control number ▲ ! capital gain that you elect to include in investment income on CAUTION line 4g are not eligible to be taxed 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, 1545-0074 and is included in the estimates shown in the instructions for their individual income tax return. The estimated burden for at the qualified dividends or all other taxpayers who file this form is shown the 2% adjusted gross income limitation on below. Recordkeeping, 39 min.; Learning capital gains tax rates. You should consider Schedule A (Form 1040), line 26, may reduce about the law or the form, 12 min.; the tax effect of using the qualified dividends the amount you must include on Form 4952, Preparing the form, 24 min.; and Copying, and capital gains tax rates before making this line 5. Include on line 5 the smaller of: (a) the assembling, and sending the form to the election. Once made, the election can be investment expenses included on Schedule A IRS, 13 min. revoked only with IRS consent. (Form 1040), line 23, or (b) the total on If you have comments concerning the Schedule A (Form 1040), line 27. accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. See the instructions for the tax return with which this form is filed.