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Investment income of child reported on parent's return - Investment income includes the part of your child's interest and dividend income that you choose to report on your return. If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814, Parents' Election To Report Child's Interest and Dividends. Include it on line 4a of Form 4952.

Example.
Your 8-year-old son has interest income of $2,000, which you choose to report on your own return. You enter $2,000 on Form 8814, lines 1a and 4, and $300 on lines 6 and 12. Also enter $300 on Form 1040, line 21. Your investment income includes this $300.

Child's qualified dividends - If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends, earlier.

Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends).

Child's Alaska Permanent Fund dividends - If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. Subtract the result from the amount on Form 8814, line 12.

Example.
Your 10-year-old child has taxable interest income of $4,000 and Alaska Permanent Fund dividends of $2,000. You choose to report this on your return. You enter $4,000 on Form 8814, line 1a, $2,000 on line 2a, and $6,000 on line 4. You then enter $4,300 on Form 8814, lines 6 and 12, and Form 1040, line 21. You figure the amount of your child's income that you can consider your investment income as follows:

$4,300 - ($4,300 × ($2,000 ÷ $6,000))

You include the result, $2,867 on Form 4952, line 4a.

Child's capital gain distributions - If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D, line 13, or Form 1040, line 13) generally does not count as investment income. However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain, earlier.

Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends, earlier).

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