Home
Tax
Accounting
Payroll & Benefits
Public Companies

Form 4952
Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest.

Example.
Jane Smith is single. Her 2006 income includes $3,000 in dividends (other than qualified dividends) and a net capital gain of $9,000 from the sale of investment property. She also has a gain of $1,000 from the sale of a painting given to her by an artist friend. The painting is not a capital asset because Jane's basis in the painting is determined by reference to her friend's basis in the painting. She incurred $12,500 of investment interest expense. Her other investment expenses directly connected with the production of investment income total $980 after applying the 2% limit on miscellaneous itemized deductions on Schedule A (Form 1040).

For 2006, Jane chooses to include all of her net capital gain in investment income. Her total investment income is $13,000 ($3,000 dividends + $9,000 net capital gain + $1,000 from the sale of the painting). Her net investment income is $12,020 ($13,000 total investment income - $980 other investment expenses).

Jane's Form 4952 is illustrated, later. Her investment interest expense deduction is limited to $12,020, the amount of her net investment income. The $480 disallowed investment interest expense is carried forward to 2007.

Exception to use of Form 4952
You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests:

1. Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends.
2. You do not have any other deductible investment expenses.
3. You have no carryover of investment interest expense from 2005.

If you meet all of these tests, you can deduct all of your investment interest.

Back to: Investment Interest Expense Index

Other sections to read about investment interest expense: Investment Interest Expense, Investment Interest General Information, Allocation of Interest Expense, When to Deduct Interest Expense, Form 4954 Guidelines, Investment Income of Children, Limits on Investment Interest Deduction, Investment Expenses