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. 12B

Name(s) shown on return Identifying number

1 Investment interest expense paid or accrued in 2003 (see instructions) 1

2 Disallowed investment interest expense from 2002 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 (2003)

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 2004. 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 2003 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 have no other deductible investment

expenses.

● Your investment interest expense is not

more than your investment income from

interest and ordinary dividends minus any

qualified dividends.

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

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 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 have no disallowed investment interest

expense from 2002.

Exception. You do not have to file Form

4952 if all of the following apply.

2003

A Change To Note

In general, qualified dividends shown on

Form 1040, line 9b (or Form 1041, line 2b(2)),

are excluded from investment income. But

you can elect on Form 4952, line 4g, to

include part or all of your qualified dividends

in investment income. See the instructions for

line 4g for details.

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 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.
Form 4952 (2003) 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

22, the 2% adjusted gross income limitation

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 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).

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

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.

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.

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

line 25 of Schedule D (Form 1040) (or line 22

of Schedule D (Form 1041)), if applicable. 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.

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, 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.

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.

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 below.

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 41 (or Form

1041, Schedule G, line 1a). However, you

may 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.

CAUTION

CAUTION

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:

(a) the investment expenses included on

Schedule A (Form 1040), line 22, or (b) the

total on Schedule A (Form 1040), line 26.