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. 12A

Name(s) shown on return Identifying number

1 Investment interest expense paid or accrued in 1995. See instructions 1

2 Disallowed investment interest expense from 1994 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 (1995)

General Instructions

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.

Section references are to the Internal

Revenue Code unless otherwise noted. Form

1040-T references are to a new form sent to

certain individuals on a test basis.

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 all or part of the amount on 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. See instructions

Disallowed investment interest expense to be carried forward to 1996. 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

Interest expense paid by an individual, estate,

or trust on a loan allocable to property held for

investment may not be fully deductible in the

current year. Use Form 4952 to figure the

amount of investment interest expense

deductible for the current year and the amount,

if any, to carry forward to future years.

For more details, get Pub. 550, Investment

Income and Expenses.

Learning about the

law or the form 15 min.

Preparing the form 21 min.

Copying, assembling, and

sending the form to the IRS 10 min.

Who Must File

If you are an individual, estate, or a trust, and

you claim a deduction for investment interest

● Your only investment income was from

interest or dividends.

● You have no other deductible expenses

connected with the production of interest or

dividends.

● Your investment interest expense is not

more than your investment income.

● You have no disallowed investment interest

expense from 1994.

(99)

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.

A Change To Note

If you had a carryover of disallowed interest

expense from 1983, 1984, 1985, or 1986, that

carryover may need to be refigured based on

Rev. Rul. 95-16, 1995-1 C.B. 9. Under Rev.

Rul. 95-16, the carryover of disallowed

investment interest expense from any tax

year is not limited by the taxable income for

that year. The amount you enter on line 2 of

the 1995 Form 4952 could be affected by this

change.

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 paid. 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. 550.

expense, you must complete and attach Form

4952 to your tax return, unless all the

following apply.
Form 4952 (1995) Page 2

● Rental of substantially nondepreciable

property,

● Equity-financed lending activities, and

● Acquisition of certain interests in a

pass-through entity licensing intangible

property.

See Regulations section 1.469-2(f)(10) for

details.

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.

Property held for investment.—Property

held for investment includes property that

produces income (unless derived in the

ordinary course of a trade or business) from

interest, dividends, annuities, or royalties; and

gains from the disposition of property that

produces those types of income or is held for

investment. However, it does not include an

interest in a passive activity.

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

(or Form 1040-T, Section B, line o), you may

not have to use the entire amount for

purposes of Form 4952, line 5. The 2%

adjusted gross income limitation on Schedule

A (Form 1040), line 25 (or Form 1040-T,

Section B, line q) may reduce the amount you

must enter on Form 4952, line 5.

To figure the amount to use, compare the

amount of the investment expenses included

on Schedule A (Form 1040), line 22 (or Form

1040-T, Section B, line o), with the total

miscellaneous expenses on Schedule A (Form

1040), line 26 (or Form 1040-T, Section B,

line r). The smaller of (a) the investment

expenses included on Schedule A (Form

1040), line 22 (or Form 1040-T, Section B,

line o), or (b) the total on Schedule A (Form

1040), line 26 (or Form 1040-T, Section B,

line r) is the amount of investment expenses

included as a miscellaneous itemized

deduction to use when figuring Form 4952,

line 5.

Example for Form 1040. Assume

Schedule A, line 22, includes investment

expenses of $3,000, and line 26 is $1,300

after the 2% adjusted gross income limitation.

Investment expenses from Schedule A of

$1,300 are used to figure the amount of

investment expenses for line 5. If investment

expenses of $800 were included on line 22

and line 26 was $1,300, investment expenses

from Schedule A of $800 would

be used.

Part III—Investment Interest

Expense Deduction

This is the amount you may deduct 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 (or Form 1040-T, Section B, line j), even if

all or part of it is attributable to a partnership

or an S corporation. If any portion of this

amount is attributable to royalties, enter that

part of the interest expense on Schedule E

(Form 1040). If any portion is attributable to a

trade or business in which you did not

materially participate and that is not a passive

activity, enter that part of the interest

expense 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 portion of the 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 portion attributable to the

at-risk activity on Form 6198, line 4. Reduce

Form 4952, line 8, by the amount entered on

Form 6198. See Form 6198 and its

instructions for more details, especially the

instructions for line 4 of that form.

Alternative minimum tax (AMT).—Deductible

interest expense is an adjustment for the AMT.

Get 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 Form 8814

for details.

Also, include on line 4a net income from

the following passive activities:

Line 8

Specific Instructions

Part I—Total Investment

Interest Expense

Enter the investment interest paid or accrued

during the tax year, regardless of when you

incurred the indebtedness. Investment

interest is interest paid or accrued on a loan

(or part of a loan) that is allocable to property

held for investment (as defined below).

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 does not

include 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 separate instructions for

Form 8582, Passive Activity Loss Limitations,

for more 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.

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

Gross income from property held for

investment to enter on line 4a includes

income (unless derived in the ordinary course

of a trade or business) from:

● Interest,

● 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 this amount on

line 4b.

Line 4b

Net gain from the disposition of property held

for investment is the excess, if any, of total

gains over total losses from the disposition of

property held for investment. When figuring

this amount, include capital gain distributions

from mutual funds.

Line 4c

Net capital gain from the disposition of

property held for investment is the excess, if

any, of net long-term capital gain over net

short-term capital loss from the disposition of

property held for investment. When figuring

this amount, include capital gain distributions

from mutual funds.

Line 4e

Net capital gain from the disposition of

property held for investment is excluded from

investment income. However, you may elect

to include in investment income all or part of

the net capital gain from the disposition of

property held for investment. If you make the

election, you also must reduce the amount of

net capital gain eligible for the 28% maximum

capital gains rate by the amount of net capital

gain you included in investment income.

Therefore, you should consider the effect on

your tax using the maximum capital gains

rate before making this election. You must

make the election no later than the due date

(including extensions) of your income tax

return. Once made, the election may not be

revoked without IRS consent.

Property held for investment also includes

an interest in an activity of conducting a trade

or business in which you did not materially

participate and that is not a passive activity.

For example, 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 if you did not

materially participate in the activity.

Line 1

Printed on recycled paper

Investment expenses do not include any

deductions taken into account in determining

your income or loss from a passive activity.

To make the election, enter all or part of

the amount on line 4c, but not more than the

amount on line 4b, that you elect to include in

investment income. Also enter this amount on

line 3 of the Capital Gain Tax Worksheet in

the Form 1040 (or Form 1040-T) instructions,

or on line 37b of Schedule D (Form 1041), if

applicable.