Form 4952 (2019)
Page 3
Section references are to the Internal Revenue Code unless otherwise
noted.
Future Developments
For the latest information about developments related to Form 4952 and
its instructions, such as legislation enacted after they were published,
go to www.irs.gov/Form4952.
General Instructions
Purpose of Form
Use Form 4952 to figure the amount of investment interest expense you
can deduct for 2019 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 don’t 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 don’t have any other deductible investment expenses.
• You don’t have any carryover of disallowed investment interest
expense from 2018.
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 rules apply to investment interest, personal
interest, trade or business interest, home mortgage interest, and passive
activity interest. See Pub. 535, Business Expenses.
Specific Instructions
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 later).
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 doesn’t include any of the following.
• Personal interest under section 163(h), including qualified residence
interest.
• Interest expense that is properly allocable to a passive activity.
Generally, a passive activity is any trade or business activity in which
you don’t materially participate and any rental activity. See the
Instructions for Form 8582, Passive Activity Loss Limitations, for details.
• 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
doesn’t 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 didn’t limit your liability is property held
for investment, but only if you didn’t 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 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 Regulations sections 1.469-10 and 1.7704-1 (including
the transition rule of section 1.7704-1(l)) 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
Don’t 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 Forms 1040 and 1040-SR, line 3a (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 next.
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.
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CAUTION
The qualified dividends and net capital gain that you elect to
include in investment income on line 4g aren’t 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.
To make the election, enter on line 4g the amount you elect to include
in investment income (don’t 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 Forms 1040 and 1040-SR.
• The Schedule D Tax Worksheet, line 3.
• Schedule D (Form 1041), line 25.
• The Qualified Dividends Tax Worksheet, line 3, in the Instructions for
Form 1041.
