OMB No. 1545-0191

Form 4952 Investment Interest Expense Deduction

 Attach to your tax return. Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 72

Name(s) shown on return Identifying number

1 Investment interest expense paid or accrued in 2002. See instructions 1

2 Disallowed investment interest expense from 2001 Form 4952, line 7 2

3 Total investment interest expense. Add lines 1 and 2 3

4a

Gross income from property held for investment (excluding any net gain from the disposition of

property held for investment)

4a

5 Investment expenses. See instructions 5

6 Net investment income. Subtract line 5 from line 4f. If zero or less, enter -0- 6

Cat. No. 13177Y Form 4952 (2002)

General Instructions

Section references are to the Internal

Revenue Code unless otherwise noted.

Total Investment Interest Expense

Net Investment Income

Investment Interest Expense Deduction

b Net gain from the disposition of property held for investment

c Net capital gain from the disposition of property held for investment

d Subtract line 4c from line 4b. If zero or less, enter -0-

e Enter the amount from line 4c that you elect to include in investment income. Do not enter more

than the amount on line 4b. See instructions 

f Investment income. Add lines 4a, 4d, and 4e

Disallowed investment interest expense to be carried forward to 2003. 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

4f

4b

4c

4d

4e

7

8

Part III

Part I

Part II

Purpose of Form

Use Form 4952 to figure the amount of

investment interest expense you can

deduct for 2002 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

and you claim a deduction for investment

interest expense, you must complete Form

4952 and attach it to your tax return.

● You have no other deductible investment

expenses.

● Your investment interest expense is not

more than your investment income from

interest and ordinary dividends.

Allocation of Interest Expense

Under Temporary Regulations

Section 1.163-8T

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

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 page 2).

Include investment interest expense

reported to you on Schedule K-1 from a

partnership or an S corporation. Include

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 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.

● 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.

Line 1

● 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.

For Paperwork Reduction Act Notice, see back of form.

● You have no disallowed investment

interest expense from 2001.

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.

(99)

2002

Exception. You do not have to file Form

4952 if all of the following apply.
Form 4952 (2002) Page 2

Also include on line 4a (or 4b, 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.

Line 5

Include investment expenses reported to

you on Schedule K-1 from a partnership or

an S corporation.

If you have investment expenses that

are included as a miscellaneous itemized

deduction on Schedule A (Form 1040), line

22, the 2% adjusted gross income

limitation on Schedule A (Form 1040), line

25, may reduce the amount you must

include on Form 4952, line 5. Include on

line 5 the smaller of:

Part III—Investment Interest

Expense Deduction

You may deduct the amount on line 8 as

investment interest expense.

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.

Individuals. Generally, enter the amount

from line 8 on Schedule A (Form 1040), line

13, 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 on Form 1041, line 10.

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. Enter the part

attributable to the at-risk activity on Form

6198, line 4. Reduce Form 4952, line 8, by

the amount entered on Form 6198.

Alternative minimum tax (AMT).

Deductible interest expense may be an

adjustment for the AMT. For details, see

Form 6251, Alternative Minimum Tax—

Individuals, or Form 1041, Schedule I, for

estates and trusts.

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.

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).

Line 8

Part II—Net Investment Income

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.

Line 4a

Enter your gross income from property

held for investment. This 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.

Do not include on line 4a any

net gain from the disposition

of property held for

investment. Instead, enter it on

line 4b.

Line 4b

Enter your net gain from the disposition of

property held for investment. This 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.

Line 4c

Enter your net capital gain from the

disposition of property held for investment.

This 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.

Line 4e

Net capital gain from the disposition of

property held for investment, line 4c, is

excluded from investment income.

However, you may elect to include in

investment income part or all of the net

capital gain from the disposition of

property held for investment. If you make

this election, you must reduce the amount

of net capital gain eligible for capital gains

tax rates by the amount of net capital gain

you include in investment income.

Therefore, you should consider the tax

effect of using the capital gains tax rates

before making this election. Once made,

the election may only be revoked with IRS

consent.

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.

Investment expenses do not include any

deductions used in determining your

income or loss from a passive activity.

To make the election, enter on line 4e

the amount you elect to include in

investment income. Also enter this amount

on line 22 of Schedule D (Form 1040), or

on line 20 of Schedule D (Form 1041), if

applicable.

Paperwork Reduction Act Notice. We ask

for the information on this form to carry out

the Internal Revenue laws of the United

States. You are required to give us the

information. We need it to ensure that you are

complying with these laws and to allow us to

figure and collect the right amount of tax.

The time needed to complete and file this

form will vary depending on individual

circumstances. The estimated average time

is:

Recordkeeping 13 min.

Learning about the

law or the form 16 min.

Preparing the form 21 min.

Copying, assembling, and

sending the form to the IRS 10 min.

If you have comments concerning the

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.

You are not required to provide the

information requested on a form that is

subject to the Paperwork Reduction Act

unless the form displays a valid OMB control

number. Books or records relating to a form

or its instructions must be retained as long as

their contents may become material in the

administration of any Internal Revenue law.

Generally, tax returns and return information

are confidential, as required by section 6103.

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.

● The investment expenses included on

Schedule A (Form 1040), line 22, or

● The total on Schedule A (Form 1040),

line 26.

You must generally 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.

Capital gain distributions from mutual

funds are treated as long-term capital

gains.

Form 4952 (2002)

CAUTION