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 2001. See instructions 1

2 Disallowed investment interest expense from 2000 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 (2001)

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. See instructions

Disallowed investment interest expense to be carried forward to 2002. 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

2001 and the amount you can carry forward to

future years. Your investment interest expense

deduction is limited to your net investment

income.

For additional 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 unless all of the

following apply.

● 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 separate 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.

● You have no disallowed investment interest

expense from 2000.

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.

2001

(99)
Form 4952 (2001) 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:

Example. 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 line

5. If line 22 included investment expenses of

$800 and line 26 was $1,300, investment

expenses from Schedule A of $800 would

be used.

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 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.

Caution: 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 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 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 (2001)