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 1997. See instructions 1

2 Disallowed investment interest expense from 1996 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 (1997)

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 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 1998. 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, 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 and attach Form

4952 to your tax return, unless all the

following apply.

● 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 1996.

(99)

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.

97

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 later).

Include investment interest expense

reported to you on Schedule K-1 from a

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.

Line 1

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.

● 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.
Form 4952 (1997) 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.

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, 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, 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, with the

total miscellaneous expenses on Schedule A

(Form 1040), line 26. 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, is the

amount of investment expenses included as a

miscellaneous itemized deduction to use

when figuring Form 4952, line 5.

Example. 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,

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

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 capital gains tax

rates by the amount of net capital gain you

included in investment income. Therefore, you

should consider the effect on your tax using

the capital gains tax rates 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.

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 21 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 15 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

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unless the form displays a valid OMB control

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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 (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.