Form 4952 

Department of the Treasury 

Internal Revenue Service (99) 

Investment Interest Expense Deduction 

© Attach to your tax return.

OMB No. 1545-0191 

2009

Attachment 

Sequence No. 51 

Name(s) shown on return Identifying number 

Part I Total Investment Interest Expense 

1 Investment interest expense paid or accrued in 2009 (see instructions) . . . . . . . . 1 

2 Disallowed investment interest expense from 2008 Form 4952, line 7 . . . . . . . . . 2 

3 Total investment interest expense. Add lines 1 and 2 . . . . . . . . . . . . . . 3 

Part II Net Investment Income 

4 a Gross income from property held for investment (excluding any net 

gain from the disposition of property held for investment) . . . 4a 

b Qualified dividends included on line 4a . . . . . . . . . 4b 

c Subtract line 4b from line 4a . . . . . . . . . . . . . . . . . . . . . . 4c 

d Net gain from the disposition of property held for investment . . 4d 

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

disposition of property held for investment (see instructions) . 4e 

f Subtract line 4e from line 4d . . . . . . . . . . . . . . . . . . . . . . 4f 

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

instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4g

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

5 Investment expenses (see instructions) . . . . . . . . . . . . . . . . . . . 5 

6 Net investment income. Subtract line 5 from line 4h. If zero or less, enter -0- . . . . . . 6 

Part III Investment Interest Expense Deduction 

7 Disallowed investment interest expense to be carried forward to 2010. 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 . . 8 

Section references are to the Internal 

Revenue Code unless otherwise noted. 

General Instructions 

Purpose of Form 

Use Form 4952 to figure the amount of 

investment interest expense you can deduct 

for 2009 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. 

Exception. You do not have to file Form 

4952 if all of the following apply. 

● Your investment income from interest and 

ordinary dividends minus any qualified 

dividends is more than your investment 

interest expense. 

● You do not have any other deductible 

investment expenses. 

● You do not have any carryover of 

disallowed investment interest expense from 

2008. 

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 

Line 1 

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.

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.

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.

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.

Part II—Net Investment 

Income

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. Include investment income

For Paperwork Reduction Act Notice, see back of form. Cat. No. 13177Y Form 4952 (2009) 
Form 4952 (2009) Page 2 

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. 

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. 

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). 

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. 

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 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. 

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. 

Capital gain distributions from mutual funds 

are treated as long-term capital gains. 

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

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

the line 4g instructions. 

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. 

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. 

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. 

● The Qualified Dividends Tax Worksheet, 

line 3, in the Instructions for Form 1041. 

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. 

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. 

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. 

Line 5 

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. 

Include investment expenses reported to 

you on Schedule K-1 from a partnership or an 

S corporation. 

Investment expenses do not include any 

deductions used in determining your income 

or loss from a passive activity. 

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 

Line 8 

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). 

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. 

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. 

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.