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. 51

Name(s) shown on return Identifying number

1 Investment interest expense paid or accrued in 2008 (see instructions) 1

2 Disallowed investment interest expense from 2007 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 4h. If zero or less, enter -0- 6

Cat. No. 13177Y Form 4952 (2008)

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 Qualified dividends included on line 4a 

c Subtract line 4b from line 4a

d Net gain from the disposition of property held for investment 

e Enter the smaller of line 4d or your net capital gain from the disposition

of property held for investment (see instructions)

f Subtract line 4e from line 4d

Disallowed investment interest expense to be carried forward to 2009. 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

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 2008 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.

● You do not have any other deductible

investment expenses.

● Your investment income from interest and

ordinary dividends minus any qualified

dividends is more than your investment

interest expense.

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

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 this page).

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.

Line 1

For Paperwork Reduction Act Notice, see back of form.

● You do not have any carryover of disallowed

investment interest expense from 2007.

Exception. You do not have to file Form 4952 

if all of the following apply.

g Enter the amount from lines 4b and 4e that you elect to include in investment income (see

instructions)

h Investment income. Add lines 4c, 4f, and 4g 4h

4g

4d

4e

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.

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 trade or 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.

● 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.

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.

(99)

rules apply to investment interest, personal

interest, trade or business interest, home

mortgage interest, and passive activity

interest. See Pub. 535, Business Expenses.

Part II—Net Investment

Income

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

Line 4a

2008
Form 4952 (2008) Page 2

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 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 23, the 2% adjusted gross income

limitation on Schedule A (Form 1040), line 26,

may reduce the amount you must include on

Form 4952, line 5. Include on line 5 the

smaller of: (a) the investment expenses

included on Schedule A (Form 1040), line 23,

or (b) the total on Schedule A (Form 1040),

line 27.

Part III—Investment Interest

Expense Deduction

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 (excluding any amount included on

Form 6198, line 4—see below) on Schedule A

(Form 1040), line 14, 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 (excluding any amount included on

Form 6198, line 4—see below) 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. Include the part attributable to the

at-risk activity on Form 6198, line 4.

Alternative minimum tax (AMT). Deductible

interest expense may be an adjustment for

the AMT. For details, see Form 6251,

Alternative Minimum Tax—Individuals or

Schedule I (Form 1041).

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

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.

Do not 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 Form 1040,

line 9b (or Form 1041, line 2b).

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.

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. Investment expenses do not include any

deductions used in determining your income

or loss from a passive activity.

● The Qualified Dividends Tax Worksheet,

line 3, in the Instructions for Form 1041.

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 burden for

individual taxpayers filing this form is

approved under OMB control number

1545-0074 and is included in the estimates

shown in the instructions for their individual

income tax return. The estimated burden for

all other taxpayers who file this form is shown

below. Recordkeeping, 39 min.; Learning

about the law or the form, 12 min.;

Preparing the form, 22 min.; and Copying,

assembling, and sending the form to the

IRS, 13 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.

Generally, you must 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.

The qualified dividends and net

capital gain that you elect to

include in investment income on

line 4g are not 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.

Note. If line 4e is more than zero and you

enter an amount on line 4g, see the Note in

the line 4g instructions.

Note. The amount on line 4g is generally

treated as being attributable first to net

capital gain from property held for

investment (line 4e), and then to qualified

dividends (line 4b). This treatment results in

the least tax being figured for Form 1040,

line 44 (or Form 1041, Schedule G, line 1a).

However, you can treat less of the amount

on line 4e as attributable to line 4g and

more to line 4b. You may want to do this if

you are filing Form 1116, Foreign Tax Credit,

as your tax after credits may be lower in

certain cases. To do so, enter on the dotted

line next to line 4e “Elec.” and the part of

line 4e that you elect to treat as being

attributable to line 4g (do not enter less than

the excess of line 4g over line 4b). You will

use this smaller amount instead of the

amount on line 4e when figuring your tax.

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.

CAUTION

CAUTION

To make the election, enter on line 4g the

amount you elect to include in investment

income (do not 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

Form 1040.

● The Schedule D Tax Worksheet, line 3.

● Schedule D (Form 1041), line 21.

Do not reduce the amount of qualified

dividends on Form 1040, line 9b (or

Form 1041, line 2b(2)), by any part of the

amount on line 4g.