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Confusion on Interest Expenses

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  • Confusion on Interest Expenses

    We bought into the practice and borrowed to buy the stock.  The physicians are all owner/partners.  This year we paid over $4,000 on interest on the loan.  As I read different documents and publications from the IRS and FAQs on tax software (TaxAct, TurboTax), I can't figure out if 0%, 25%, or 100% is allowed on form 4952.  I called the IRS.  The switchboard sent me to a department where the auto message is:

    We no longer answer these questions on the phone.  Please go to the website...


    Which was no help.  I wish I could hire a CPA for this one question and nothing more, so I'm hoping someone here can help.


    On the k-1 have $19,180 in box 2 net rental, $983 in  box 4 interest income, $20,500 in box 16 and AMT is $1149 in box 15.  My overall interest income (k-1 plus other) is $2080 in interest and $1465 in dividends.


    IRS publication states:
    Generally, your deduction for investment interest expense is limited to the amount of your net investment income.

    You can carry over the amount of investment interest that you couldn't deduct because of this limit to the next tax year. The interest carried over is treated as investment interest paid or accrued in that next year.

    You can carry over disallowed investment interest to the next tax year even if it's more than your taxable income in the year the interest was paid or accrued.

    Net Investment Income

    Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income.
    Investment income.This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). Investment income doesn't include Alaska Permanent Fund dividends. It also doesn't include qualified dividends or net capital gain unless you choose to include them.

    Choosing to include qualified dividends.   Investment income generally doesn't include qualified dividends, discussed in chapter 8. However, you can choose to include all or part of your qualified dividends in investment income.  You make this choice by completing Form 4952, line 4g, according to its instructions.  If you choose to include any amount of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount.

    So my question is what counts as income?  Just the $983?  And can I claim that?  Does the $19,180 count?  Can I include the other interest/dividends?  I'm confused what counts here.

    Thank you for anyone who can clear this up for me.

  • #2
    This is one of those "it depends" answers and, quite frankly, I'm not sure why you wish you could pay a CPA simply just to answer this one question. The CPA would probably have your income tax return halfway completed by the time he/she had reached a conclusion, given the facts you have presented. At some point, you really should call in a specialist and, it seems to me, that this is one of those cases.

    I can tell you that net rental is not an offset, that interest is an offset, and that dividends may or may not be.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087