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State Nm Us Tax

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State Nm Us Tax

State nm us tax Index A Accidentes, Pérdidas deducibles. State nm us tax , Pérdidas no deducibles. State nm us tax Agencia Federal para el Manejo de Emergencias (FEMA) , cómo comunicarse con la, Cómo Comunicarse con la Agencia Federal para el Manejo de Emergencias (FEMA) Ajustes a la base, Ajuste a la base de los bienes de una sociedad anónima. State nm us tax , Ajustes a la Base Aplazamiento de la declaración de una ganancia, Aplazamiento de la Declaración de una Ganancia Bienes de reposición adquiridos antes de presentar la declaración de impuestos, Bienes de reposición adquiridos antes de presentar la declaración de impuestos. State nm us tax Bienes de reposición adquiridos después de haber presentado la declaración de impuestos, Bienes de reposición adquiridos después de haber presentado la declaración de impuestos. State nm us tax Cambio de idea, Si cambia de idea. State nm us tax Declaración enmendada, Declaración enmendada. State nm us tax Documento escrito requerido, Documento escrito requerido. State nm us tax Límite de 3 años, Límite de 3 años. State nm us tax Sustitución de los bienes de reposición, Sustitución de los bienes de reposición. State nm us tax Asistencia (see Ayuda con los impuestos) Automóviles Accidentes, Pérdidas deducibles. State nm us tax Valor justo de mercado de, Valor de automóviles. State nm us tax Ayuda (see Ayuda con los impuestos) Ayuda con los impuestos, Cómo Obtener Ayuda con los Impuestos B Base Ajustada, Base Ajustada Ajustes a, Ajuste a la base de los bienes de una sociedad anónima. State nm us tax , Ajustes a la Base Propiedad de Reposición, Base de la propiedad de reposición. State nm us tax Base ajustada, Base Ajustada Bienes de reposición, Bienes de Reposición Ajuste a la base de los bienes de una sociedad anónima, Ajuste a la base de los bienes de una sociedad anónima. State nm us tax Aplazamiento de la declaración de una ganancia, Bienes de reposición adquiridos antes de presentar la declaración de impuestos. State nm us tax Pago adelantado, Pago adelantado. State nm us tax Vivienda principal Ubicada en zona de desastre, Vivienda principal en una zona de desastre. State nm us tax Bienes de uso personal Cómo declarar pérdidas y ganancias, Bienes de uso personal. State nm us tax Bienes extraviados o perdidos, Bienes extraviados o perdidos. State nm us tax Bienes muebles Deducción de pérdidas, cálculo de, Bienes muebles. State nm us tax Bienes raíces de uso personal, Excepción en el caso de bienes inmuebles de uso personal. State nm us tax Bienes robados (see Pérdidas por robo) Bienes robados recuperados, Bienes robados recuperados. State nm us tax C Comentarios sobre la publicación, Comentarios y sugerencias. State nm us tax Cómo aplazar la declaración de una ganancia, Cómo Aplazar la Declaración de una Ganancia Cómo calcular una ganancia, Propiedad usada en parte para fines comerciales y en parte para fines personales. State nm us tax Cómo calcular una pérdida, Comprobación de las pérdidas por robo. State nm us tax Base ajustada, Base Ajustada Pérdidas en zonas de desastre, Cómo calcular la deducción de pérdidas. State nm us tax Seguro y otros reembolsos, Seguro y Otros Reembolsos Cómo Calcular una Pérdida, Cómo Calcular la Deducción Cómo declarar pérdidas y ganancias, Declaración de una ganancia. State nm us tax , Cómo Declarar Pérdidas y Ganancias Adquiridos antes o después de presentar la declaración de impuestos, Cuándo Declarar Pérdidas y Ganancias Base, ajustes a la, Ajustes a la Base Bienes de uso personal, Bienes de uso personal. State nm us tax Deducciones mayores al ingreso, Si las Deducciones son Mayores que el Ingreso Depósitos monetarios, Cómo se declaran las pérdidas de depósitos monetarios. State nm us tax Tabla 1, Tabla 1. State nm us tax Cómo Declarar la Pérdida de Depósitos Monetarios Pérdidas en zonas de desastre, Cómo declarar la pérdida en el Formulario 1040X. State nm us tax Propiedad comercial y de generación de ingresos, Bienes comerciales y de generación de ingresos. State nm us tax Comprobación de las Pérdidas, Comprobación de las Pérdidas Contribuyentes casados Límites de la deducción, Contribuyentes casados. State nm us tax , Contribuyentes casados. State nm us tax Costos Fotografías tomadas después de la pérdida, Costos de fotografías y tasaciones. State nm us tax Gastos imprevistos, Gastos afines. State nm us tax Jardines, Jardines. State nm us tax Limpieza, Costos de limpieza y reparaciones. State nm us tax Protección, Costos de protección. State nm us tax Reparaciones, Costos de limpieza y reparaciones. State nm us tax Reposición, Costos de reposición. State nm us tax Tasaciones, Costos de fotografías y tasaciones. State nm us tax Costos de limpieza, Costos de limpieza y reparaciones. State nm us tax Costos de protección, Costos de protección. State nm us tax Costos de reparación, Costos de limpieza y reparaciones. State nm us tax Costos de reposición, Costos de reposición. State nm us tax D Declaración enmendada, Declaración enmendada. State nm us tax Defensor del Contribuyente, El Servicio del Defensor del Contribuyente está aquí para ayudarlo a usted. State nm us tax Desastres declarados por el gobierno federal, Propiedad comercial o de generación de ingresos ubicada en una zona de desastre declarada por el gobierno federal. State nm us tax , Pérdidas en Zonas de Desastre Deudas incobrables, Deudas incobrables no relacionadas con los negocios. State nm us tax Deudas incobrables no relacionadas con los negocios, Deudas incobrables no relacionadas con los negocios. State nm us tax Documentación de la pérdida, Comprobación de las pérdidas por robo. State nm us tax Donaciones en efectivo, Donaciones en efectivo. State nm us tax E Entidad afín, compra de bienes de reposición de una, Compra de bienes de reposición de una entidad afín. State nm us tax Esquemas de inversión de tipo Ponzi , Pérdidas provenientes de esquemas de inversión de tipo Ponzi (Ponzi-type schemes). State nm us tax Expropiaciones forzosas, Expropiaciones forzosas. State nm us tax F Fallecimiento de un contribuyente Aplazamiento de la declaración de una ganancia, Fallecimiento de un contribuyente. State nm us tax Fines comerciales, propiedad usada en parte para, Propiedad usada en parte para fines comerciales y en parte para fines personales. State nm us tax Fondo de emergencia del empleador en caso de desastre, Fondo de emergencia del empleador en caso de desastre. State nm us tax Formulario 1040, Anexo A, Bienes de uso personal. State nm us tax Formulario 1040, Anexo D, Bienes de uso personal. State nm us tax Formulario 1040X Pérdidas en zonas de desastre, Cómo declarar la pérdida en el Formulario 1040X. State nm us tax Formulario 4684 Cómo declarar pérdidas y ganancias en bienes de uso personal, Bienes de uso personal. State nm us tax Fotografías Documentación de la pérdida, Costos de fotografías y tasaciones. State nm us tax G Ganancias Aplazamiento de, Aplazamiento de la Declaración de una Ganancia, Cómo Aplazar la Declaración de una Ganancia Cómo calcular, Cómo Calcular una Ganancia Cómo declarar, Cómo Comunicarse con la Agencia Federal para el Manejo de Emergencias (FEMA) Cuándo declarar, Si cambia de idea. State nm us tax Reembolsos, Ganancias por reembolsos. State nm us tax Gastos afines, Gastos afines. State nm us tax Gastos imprevistos, Gastos afines. State nm us tax I Información adicional (see Ayuda con los impuestos) J Jardines, Jardines. State nm us tax L Límites de la deducción, Límites de la Deducción Límites de la Deducción Regla de los $100, Regla de los $100 Regla del 10%, Regla del 10% Regla del 2%, Regla del 2% N Niños desaparecidos, fotografías de, Recordatorios P Pagos calificados para mitigación de desastres, Pagos calificados para mitigación de desastres. State nm us tax Pagos del seguro por gastos de manutención, Pagos del seguro por gastos de manutención. State nm us tax Paneles de Yeso (Drywall) Corrosivos, Procedimiento Especial Correspondiente a Daños Ocasionados por Paneles de Yeso (Drywall) Corrosivos Pérdida de inventario, Pérdida de inventario. State nm us tax Pérdidas en zonas de desastre, Pérdida de inventario por desastre. State nm us tax Pérdida de madera en pie, Pérdida de madera en pie. State nm us tax Pérdidas Calcular la cantidad (see Cómo calcular una pérdida) Cómo declarar, Cómo Comunicarse con la Agencia Federal para el Manejo de Emergencias (FEMA) Comprobación de las, Recuperación de pérdida deducida. State nm us tax Cuándo declarar, Si cambia de idea. State nm us tax (Tabla 3), Tabla 3. State nm us tax Cuándo deducir una pérdida por hecho fortuito o robo Depósitos monetarios (see Pérdidas de depósitos) Documentación de, Comprobación de las pérdidas por robo. State nm us tax Hecho Fortuito (see Pérdidas por hecho fortuito) Robo (see Pérdidas por robo) Zonas de desastre (see Pérdidas en zonas de desastre) Pérdidas de Depósitos Declaración de (Tabla 1), Tabla 1. State nm us tax Cómo Declarar la Pérdida de Depósitos Monetarios Pérdidas de depósitos monetarios, Bienes extraviados o perdidos. State nm us tax , Tabla 3. State nm us tax Cuándo deducir una pérdida por hecho fortuito o robo Cuándo declarar, Pérdidas de depósitos monetarios. State nm us tax Pérdidas deducibles, Pérdidas deducibles. State nm us tax Pérdidas en Zonas de Desastre Cómo calcular la deducción de pérdidas, Cómo calcular la deducción de pérdidas. State nm us tax Cómo deducir la pérdida del año anterior, Cómo deducir la pérdida del año anterior. State nm us tax Cuándo deducir, Cuándo deducir la pérdida. State nm us tax Tabla 3, Tabla 3. State nm us tax Cuándo deducir una pérdida por hecho fortuito o robo Declaración en una declaración enmendada, Declaración de pérdida por desastre en declaración de impuestos enmendada. State nm us tax Desastre declarado por el gobierno federal, Propiedad comercial o de generación de ingresos ubicada en una zona de desastre declarada por el gobierno federal. State nm us tax , Pérdidas en Zonas de Desastre Documentación, Documentación. State nm us tax Formulario 1040X, Cómo declarar la pérdida en el Formulario 1040X. State nm us tax Inventario, Pérdida de inventario por desastre. State nm us tax Pagos calificados de asistencia en caso de desastre, Pagos calificados de asistencia en caso de desastre. State nm us tax Pagos calificados para mitigación de desastres, Pagos calificados para mitigación de desastres. State nm us tax Plazos Tributarios Aplazados, Zona de desastre con cobertura. State nm us tax Préstamo federal cancelado, Préstamo federal cancelado. State nm us tax Reglas para vivienda principal, Vivienda principal en zona de desastre. State nm us tax , Ganancias. State nm us tax Vivienda inhabitable, Vivienda inhabitable por desastre. State nm us tax Pérdidas en zonas de desastre, Pérdida del inquilino. State nm us tax Pérdidas no deducibles, Pérdidas no deducibles. State nm us tax Pérdidas por hecho fortuito, Tabla 3. State nm us tax Cuándo deducir una pérdida por hecho fortuito o robo Comprobación de las, Comprobación de las pérdidas por hecho fortuito. State nm us tax Cuándo declarar, Pérdidas. State nm us tax Definición, Hecho Fortuito Depósitos monetarios, pérdidas de, Pérdida ordinaria o por hechos fortuitos. State nm us tax Deterioro progresivo, Deterioro progresivo. State nm us tax Pérdidas deducibles, Pérdidas deducibles. State nm us tax Pérdidas no deducibles, Pérdidas no deducibles. State nm us tax Registros para el cálculo de, Registros para el cálculo de pérdidas por hecho fortuito y robo. State nm us tax Pérdidas por robo, Robo Bienes extraviados o perdidos, Bienes extraviados o perdidos. State nm us tax Comprobación de las, Comprobación de las pérdidas por robo. State nm us tax Cuándo declarar, Pérdidas. State nm us tax Cuándo Deducir una Pérdida por Hecho Fortuito (Tabla 3), Tabla 3. State nm us tax Cuándo deducir una pérdida por hecho fortuito o robo Esquemas de inversión de tipo Ponzi , Pérdidas provenientes de esquemas de inversión de tipo Ponzi (Ponzi-type schemes). State nm us tax Registros para el cálculo de, Registros para el cálculo de pérdidas por hecho fortuito y robo. State nm us tax Valor justo de mercado de los bienes robados, Valor justo de mercado de los bienes robados. State nm us tax Plazo de reposición, Plazo de Reposición Prórroga de, Prórroga. State nm us tax Plazos Plazos Tributarios Aplazados, Plazos Tributarios Aplazados Plazos Tributarios Aplazados, Plazos Tributarios Aplazados Propiedad alquilada, Propiedad alquilada. State nm us tax Cuándo declarar, Pérdida del inquilino. State nm us tax Propiedad comercial o de generación de ingresos, Propiedad comercial o de generación de ingresos. State nm us tax Propiedad de reposición Base de, Base de la propiedad de reposición. State nm us tax Vivienda principal, Vivienda principal repuesta. State nm us tax Publicaciones (see Ayuda con los impuestos) R Reducción de intereses, Reducción de intereses y multas. State nm us tax Reducción de intereses y multas, Reducción de intereses y multas. State nm us tax Reducción de multas, Reducción de intereses y multas. State nm us tax Reembolsos Asistencia en caso de desastre, Asistencia en caso de desastre. State nm us tax Donaciones en efectivo, Donaciones en efectivo. State nm us tax Falta de presentación de una solicitud, Falta de presentación de una solicitud de reembolso. State nm us tax Fondo de emergencia del empleador en caso de desastre, Fondo de emergencia del empleador en caso de desastre. State nm us tax Recibido después de la deducción de una pérdida, Reembolso Recibido Después de la Deducción de una Pérdida Tipos de, Tipos de Reembolsos Registros para el cálculo de pérdidas por hecho fortuito y robo, Registros para el cálculo de pérdidas por hecho fortuito y robo. State nm us tax S Seguros, Seguro y Otros Reembolsos Gastos de manutención, pagos del seguro por, Pagos del seguro por gastos de manutención. State nm us tax Servicio del Defensor del Contribuyente, El Servicio del Defensor del Contribuyente está aquí para ayudarlo a usted. State nm us tax Servicios gratuitos para los impuestos, Cómo Obtener Ayuda con los Impuestos Subsidios de asistencia en caso de desastre, Asistencia en caso de desastre. State nm us tax Subsidios estales de asistencia por desastres para empresas, Subsidios estatales de asistencia por desastre para empresas. State nm us tax Subsidios federales de asistencia en caso de desastre, Subsidios federales de asistencia en caso de desastre. State nm us tax Sugerencias para la publicación, Comentarios y sugerencias. State nm us tax T Tablas y figuras Cómo Declarar la Pérdida de Depósitos Monetarios (Tabla 1), Tabla 1. State nm us tax Cómo Declarar la Pérdida de Depósitos Monetarios Cuándo Deducir una Pérdida por Hecho Fortuito (Tabla 3), Tabla 1. State nm us tax Cómo Declarar la Pérdida de Depósitos Monetarios , Tabla 3. State nm us tax Cuándo deducir una pérdida por hecho fortuito o robo Tasaciones, Tasaciones. State nm us tax , Costos de fotografías y tasaciones. State nm us tax V Valor justo de mercado Cálculo de la disminución de, Disminución del Valor Justo de Mercado Puntos a no tener en cuenta, Cómo Calcular la Disminución del Valor Justo de Mercado —Puntos a No Tener en Cuenta Puntos a tener en cuenta, Cómo Calcular la Disminución del Valor Justo de Mercado —Puntos a Tener en Cuenta Disminución del valor de mercado de la propiedad en la zona del hecho fortuito o en sus alrededores, Disminución del valor de mercado de la propiedad en la zona del hecho fortuito o en sus alrededores. State nm us tax Valor sentimental, Valor sentimental. State nm us tax Prev  Up     Home   More Online Publications
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The State Nm Us Tax

State nm us tax 3. State nm us tax   Investment Expenses Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Limits on DeductionsPassive activity. State nm us tax Other income (nonpassive income). State nm us tax Expenses. State nm us tax Additional information. State nm us tax Interest ExpensesInvestment Interest Limit on Deduction Bond Premium AmortizationSpecial rules to determine amounts payable on a bond. State nm us tax Basis. State nm us tax How To Figure Amortization Choosing To Amortize How To Report Amortization Expenses of Producing IncomeFees to buy or sell. State nm us tax Including mutual fund or REMIC expenses in income. State nm us tax Nondeductible ExpensesUsed as collateral. State nm us tax Short-sale expenses. State nm us tax Expenses for both tax-exempt and taxable income. State nm us tax State income taxes. State nm us tax Nondeductible amount. State nm us tax Basis adjustment. State nm us tax How To Report Investment Expenses When To Report Investment Expenses Topics - This chapter discusses: Limits on Deductions , Interest Expenses , Bond Premium Amortization , Expenses of Producing Income , Nondeductible Expenses , How To Report Investment Expenses , and When To Report Investment Expenses . State nm us tax Useful Items - You may want to see: Publication 535 Business Expenses 925 Passive Activity and At-Risk Rules 929 Tax Rules for Children and Dependents Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 4952 Investment Interest Expense Deduction See chapter 5, How To Get Tax Help , for information about getting these publications and forms. State nm us tax Limits on Deductions Your deductions for investment expenses may be limited by: The at-risk rules, The passive activity loss limits, The limit on investment interest, or The 2% limit on certain miscellaneous itemized deductions. State nm us tax The at-risk rules and passive activity rules are explained briefly in this section. State nm us tax The limit on investment interest is explained later in this chapter under Interest Expenses . State nm us tax The 2% limit is explained later in this chapter under Expenses of Producing Income . State nm us tax At-risk rules. State nm us tax   Special at-risk rules apply to most income-producing activities. State nm us tax These rules limit the amount of loss you can deduct to the amount you risk losing in the activity. State nm us tax Generally, this is the cash and the adjusted basis of property you contribute to the activity. State nm us tax It also includes money you borrow for use in the activity if you are personally liable for repayment or if you use property not used in the activity as security for the loan. State nm us tax For more information, see Publication 925. State nm us tax Passive activity losses and credits. State nm us tax   The amount of losses and tax credits you can claim from passive activities is limited. State nm us tax Generally, you are allowed to deduct passive activity losses only up to the amount of your passive activity income. State nm us tax Also, you can use credits from passive activities only against tax on the income from passive activities. State nm us tax There are exceptions for certain activities, such as rental real estate activities. State nm us tax Passive activity. State nm us tax   A passive activity generally is any activity involving the conduct of any trade or business in which you do not materially participate and any rental activity. State nm us tax However, if you are involved in renting real estate, the activity is not a passive activity if both of the following are true. State nm us tax More than one-half of the personal services you perform during the year in all trades or businesses are performed in real property trades or businesses in which you materially participate. State nm us tax You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate. State nm us tax  The term “trade or business” generally means any activity that involves the conduct of a trade or business, is conducted in anticipation of starting a trade or business, or involves certain research or experimental expenditures. State nm us tax However, it does not include rental activities or certain activities treated as incidental to holding property for investment. State nm us tax   You are considered to materially participate in an activity if you are involved on a regular, continuous, and substantial basis in the operations of the activity. State nm us tax Other income (nonpassive income). State nm us tax    Generally, you can use losses from passive activities only to offset income from passive activities. State nm us tax You cannot use passive activity losses to offset your other income, such as your wages or your portfolio income. State nm us tax Portfolio income includes gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. State nm us tax It also includes gains or losses (not derived in the ordinary course of a trade or business) from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for investment. State nm us tax This includes capital gain distributions from mutual funds (and other regulated investment companies) and real estate investment trusts. State nm us tax   You cannot use passive activity losses to offset Alaska Permanent Fund dividends. State nm us tax Expenses. State nm us tax   Do not include in the computation of your passive activity income or loss: Expenses (other than interest) that are clearly and directly allocable to your portfolio income, or Interest expense properly allocable to portfolio income. State nm us tax However, this interest and other expenses may be subject to other limits. State nm us tax These limits are explained in the rest of this chapter. State nm us tax Additional information. State nm us tax   For more information about determining and reporting income and losses from passive activities, see Publication 925. State nm us tax Interest Expenses This section discusses interest expenses you may be able to deduct as an investor. State nm us tax For information on business interest, see chapter 4 of Publication 535. State nm us tax You cannot deduct personal interest expenses other than qualified home mortgage interest, as explained in Publication 936, Home Mortgage Interest Deduction, and interest on certain student loans, as explained in Publication 970. State nm us tax Investment Interest If you borrow money to buy property you hold for investment, the interest you pay is investment interest. State nm us tax You can deduct investment interest subject to the limit discussed later. State nm us tax However, you cannot deduct interest you incurred to produce tax-exempt income. State nm us tax See Tax-exempt income under Nondeductible Expenses, later. State nm us tax You also cannot deduct interest expenses on straddles discussed under Interest expense and carrying charges on straddles , later. State nm us tax Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. State nm us tax Investment property. State nm us tax   Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. State nm us tax It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). State nm us tax Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). State nm us tax Partners, shareholders, and beneficiaries. State nm us tax   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. State nm us tax Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. State nm us tax Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. State nm us tax The allocation is not affected by the use of property that secures the debt. State nm us tax Example 1. State nm us tax You borrow $10,000 and use $8,000 to buy stock. State nm us tax You use the other $2,000 to buy items for your home. State nm us tax Since 80% of the debt is used for, and allocated to, investment purposes, 80% of the interest on that debt is investment interest. State nm us tax The other 20% is nondeductible personal interest. State nm us tax Debt proceeds received in cash. State nm us tax   If you receive debt proceeds in cash, the proceeds are generally not treated as investment property. State nm us tax Debt proceeds deposited in account. State nm us tax   If you deposit debt proceeds in an account, that deposit is treated as investment property, regardless of whether the account bears interest. State nm us tax But, if you withdraw the funds and use them for another purpose, you must reallocate the debt to determine the amount considered to be for investment purposes. State nm us tax Example 2. State nm us tax Assume in Example 1 that you borrowed the money on March 1 and immediately bought the stock for $8,000. State nm us tax You did not buy the household items until June 1. State nm us tax You had deposited the $2,000 in the bank. State nm us tax You had no other transactions on the bank account until June. State nm us tax You did not sell the stock, and you made no principal payments on the debt. State nm us tax You paid interest from another account. State nm us tax The $8,000 is treated as being used for an investment purpose. State nm us tax The $2,000 is treated as being used for an investment purpose for the 3-month period. State nm us tax Your total interest expense for 3 months on this debt is investment interest. State nm us tax In June, when you spend the $2,000 for household items, you must begin to allocate 80% of the debt and the interest expense to investment purposes and 20% to personal purposes. State nm us tax Amounts paid within 30 days. State nm us tax   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. State nm us tax This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. State nm us tax   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. State nm us tax Payments on debt may require new allocation. State nm us tax   As you repay a debt used for more than one purpose, you must reallocate the balance. State nm us tax You must first reduce the amount allocated to personal purposes by the repayment. State nm us tax You then reallocate the rest of the debt to find what part is for investment purposes. State nm us tax Example 3. State nm us tax If, in Example 2 , you repay $500 on November 1, the entire repayment is applied against the amount allocated to personal purposes. State nm us tax The debt balance is now allocated as $8,000 for investment purposes and $1,500 for personal purposes. State nm us tax Until the next reallocation is necessary, 84% ($8,000 ÷ $9,500) of the debt and the interest expense is allocated to investment. State nm us tax Pass-through entities. State nm us tax   If you use borrowed funds to buy an interest in a partnership or S corporation, then the interest on those funds must be allocated based on the assets of the entity. State nm us tax If you contribute to the capital of the entity, you can make the allocation using any reasonable method. State nm us tax Additional allocation rules. State nm us tax   For more information about allocating interest expense, see chapter 4 of Publication 535. State nm us tax When To Deduct Investment Interest If you use the cash method of accounting, you must pay the interest before you can deduct it. State nm us tax If you use an accrual method of accounting, you can deduct interest over the period it accrues, regardless of when you pay it. State nm us tax For an exception, see Unpaid expenses owed to related party under When To Report Investment Expenses, later in this chapter. State nm us tax Example. State nm us tax You borrowed $1,000 on August 26, 2013, payable in 90 days at 12% interest. State nm us tax On November 26, 2013, you paid this with a new note for $1,030, due on February 26, 2014. State nm us tax If you use the cash method of accounting, you cannot deduct any part of the $30 interest on your return for 2013 because you did not actually pay it. State nm us tax If you use an accrual method, you may be able to deduct a portion of the interest on the loans through December 31, 2013, on your return for 2013. State nm us tax Interest paid in advance. State nm us tax   Generally, if you pay interest in advance for a period that goes beyond the end of the tax year, you must spread the interest over the tax years to which it belongs under the OID rules discussed in chapter 1. State nm us tax You can deduct in each year only the interest for that year. State nm us tax Interest on margin accounts. State nm us tax   If you are a cash method taxpayer, you can deduct interest on margin accounts to buy taxable securities as investment interest in the year you paid it. State nm us tax You are considered to have paid interest on these accounts only when you actually pay the broker or when payment becomes available to the broker through your account. State nm us tax Payment may become available to the broker through your account when the broker collects dividends or interest for your account, or sells securities held for you or received from you. State nm us tax   You cannot deduct any interest on money borrowed for personal reasons. State nm us tax Limit on interest deduction for market discount bonds. State nm us tax   The amount you can deduct for interest expense you paid or accrued during the year to buy or carry a market discount bond may be limited. State nm us tax This limit does not apply if you accrue the market discount and include it in your income currently. State nm us tax   Under this limit, the interest is deductible only to the extent it is more than: The total interest and OID includible in gross income for the bond for the year, plus The market discount for the number of days you held the bond during the year. State nm us tax Figure the amount in (2) above using the rules for figuring accrued market discount in chapter 1 under Market Discount Bonds . State nm us tax Interest not deducted due to limit. State nm us tax   In the year you dispose of the bond, you can deduct any interest expense you were not allowed to deduct in earlier years because of the limit. State nm us tax Choosing to deduct disallowed interest expense before the year of disposition. State nm us tax   You can choose to deduct disallowed interest expense in any year before the year you dispose of the bond, up to your net interest income from the bond during the year. State nm us tax The rest of the disallowed interest expense remains deductible in the year you dispose of the bond. State nm us tax Net interest income. State nm us tax   This is the interest income (including OID) from the bond that you include in income for the year, minus the interest expense paid or accrued during the year to purchase or carry the bond. State nm us tax Limit on interest deduction for short-term obligations. State nm us tax   If the current income inclusion rules discussed in chapter 1 under Discount on Short-Term Obligations do not apply to you, the amount you can deduct for interest expense you paid or accrued during the year to buy or carry a short-term obligation is limited. State nm us tax   The interest is deductible only to the extent it is more than: The amount of acquisition discount or OID on the obligation for the tax year, plus The amount of any interest payable on the obligation for the year that is not included in income because of your accounting method (other than interest taken into account in determining the amount of acquisition discount or OID). State nm us tax The method of determining acquisition discount and OID for short-term obligations is discussed in chapter 1 under Discount on Short-Term Obligations . State nm us tax Interest not deducted due to limit. State nm us tax   In the year you dispose of the obligation, or, if you choose, in another year in which you have net interest income from the obligation, you can deduct any interest expense you were not allowed to deduct for an earlier year because of the limit. State nm us tax Follow the same rules provided in the earlier discussion under Limit on interest deduction for market discount bonds , earlier. State nm us tax Limit on Deduction Generally, your deduction for investment interest expense is limited to your net investment income. State nm us tax You can carry over the amount of investment interest you could not deduct because of this limit to the next tax year. State nm us tax The interest carried over is treated as investment interest paid or accrued in that next year. State nm us tax You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. State nm us tax Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. State nm us tax Investment income. State nm us tax   This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). State nm us tax Investment income does not include Alaska Permanent Fund dividends. State nm us tax It also does not include qualified dividends or net capital gain unless you choose to include them. State nm us tax Choosing to include qualified dividends. State nm us tax   Investment income generally does not include qualified dividends, discussed in chapter 1. State nm us tax However, you can choose to include all or part of your qualified dividends in investment income. State nm us tax   You make this choice by completing Form 4952, line 4g, according to its instructions. State nm us tax   If you choose to include any 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. State nm us tax Choosing to include net capital gain. State nm us tax    Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). State nm us tax However, you can choose to include all or part of your net capital gain in investment income. State nm us tax   You make this choice by completing Form 4952, line 4g, according to its instructions. State nm us tax   If you choose to include any of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. State nm us tax   For more information about the capital gains rates, see Capital Gain Tax Rates in chapter 4. State nm us tax    Before making either choice, consider the overall effect on your tax liability. State nm us tax Compare your tax if you make one or both of these choices with your tax if you do not. State nm us tax Investment income of child reported on parent's return. State nm us tax   Investment income includes the part of your child's interest and dividend income you choose to report on your return. State nm us tax If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814. State nm us tax Include it on line 4a of Form 4952. State nm us tax Example. State nm us tax Your 8-year-old son has interest income of $2,200, which you choose to report on your own return. State nm us tax You enter $2,200 on Form 8814, lines 1a and 4, and $200 on lines 6 and 12 and complete Part II. State nm us tax Also enter $200 on Form 1040, line 21. State nm us tax Your investment income includes this $200. State nm us tax Child's qualified dividends. State nm us tax   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. State nm us tax However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. State nm us tax   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). State nm us tax Child's Alaska Permanent Fund dividends. State nm us tax   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. State nm us tax To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. State nm us tax Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. State nm us tax Subtract the result from the amount on Form 8814, line 12. State nm us tax Example. State nm us tax Your 10-year-old child has taxable interest income of $4,000 and Alaska Permanent Fund dividends of $2,000. State nm us tax You choose to report this on your return. State nm us tax You enter $4,000 on Form 8814, line 1a, $2,000 on line 2a, and $6,000 on line 4. State nm us tax You then enter $4,000 on Form 8814, lines 6 and 12, and Form 1040, line 21. State nm us tax You figure the amount of your child's income that you can consider your investment income as follows: $4,000 − ($4,000 × ($2,000 ÷ $6,000)) = $2,667 You include the result, $2,667, on Form 4952, line 4a. State nm us tax Child's capital gain distributions. State nm us tax   If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D (Form 1040), line 13, or Form 1040, line 13) generally does not count as investment income. State nm us tax However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. State nm us tax   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). State nm us tax Investment expenses. State nm us tax   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. State nm us tax Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. State nm us tax Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A (Form 1040), line 27. State nm us tax See Expenses of Producing Income , later, for a discussion of the 2% limit. State nm us tax Losses from passive activities. State nm us tax   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). State nm us tax See Publication 925 for information about passive activities. State nm us tax Example. State nm us tax Ted is a partner in a partnership that operates a business. State nm us tax However, he does not materially participate in the partnership's business. State nm us tax Ted's interest in the partnership is considered a passive activity. State nm us tax Ted's investment income from interest and dividends (other than qualified dividends) is $10,000. State nm us tax His investment expenses (other than interest) are $3,200 after taking into account the 2% limit on miscellaneous itemized deductions. State nm us tax His investment interest expense is $8,000. State nm us tax Ted also has income from the partnership of $2,000. State nm us tax Ted figures his net investment income and the limit on his investment interest expense deduction in the following way: Total investment income $10,000 Minus: Investment expenses (other than interest) 3,200 Net investment income $6,800 Deductible investment interest expense for the year $6,800 The $2,000 of income from the passive activity is not used in determining Ted's net investment income. State nm us tax His investment interest deduction for the year is limited to $6,800, the amount of his net investment income. State nm us tax Form 4952 Use Form 4952 to figure your deduction for investment interest. State nm us tax See Form 4952 for more information. State nm us tax Exception to use of Form 4952. State nm us tax   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. State nm us tax Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. State nm us tax You do not have any other deductible investment expenses. State nm us tax You have no carryover of investment interest expense from 2012. State nm us tax   If you meet all of these tests, you can deduct all of your investment interest. State nm us tax    Bond Premium Amortization If you pay a premium to buy a bond, the premium is part of your basis in the bond. State nm us tax If the bond yields taxable interest, you can choose to amortize the premium. State nm us tax This generally means that each year, over the life of the bond, you use a part of the premium to reduce the amount of interest includible in your income. State nm us tax If you make this choice, you must reduce your basis in the bond by the amortization for the year. State nm us tax If the bond yields tax-exempt interest, you must amortize the premium. State nm us tax This amortized amount is not deductible in determining taxable income. State nm us tax However, each year you must reduce your basis in the bond (and tax-exempt interest otherwise reportable on Form 1040, line 8b) by the amortization for the year. State nm us tax Bond premium. State nm us tax   Bond premium is the amount by which your basis in the bond right after you get it is more than the total of all amounts payable on the bond after you get it (other than payments of qualified stated interest). State nm us tax For example, a bond with a maturity value of $1,000 generally would have a $50 premium if you buy it for $1,050. State nm us tax Special rules to determine amounts payable on a bond. State nm us tax   For special rules that apply to determine the amounts payable on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. State nm us tax 171-3. State nm us tax Basis. State nm us tax   In general, your basis for figuring bond premium amortization is the same as your basis for figuring any loss on the sale of the bond. State nm us tax However, you may need to use a different basis for: Convertible bonds, Bonds you got in a trade, and Bonds whose basis has to be determined using the basis of the person who transferred the bond to you. State nm us tax See Regulations section 1. State nm us tax 171-1(e). State nm us tax Dealers. State nm us tax   A dealer in taxable bonds (or anyone who holds them mainly for sale to customers in the ordinary course of a trade or business or who would properly include bonds in inventory at the close of the tax year) cannot claim a deduction for amortizable bond premium. State nm us tax   See section 75 of the Internal Revenue Code for the treatment of bond premium by a dealer in tax-exempt bonds. State nm us tax How To Figure Amortization For bonds issued after September 27, 1985, you must amortize bond premium using a constant yield method on the basis of the bond's yield to maturity, determined by using the bond's basis and compounding at the close of each accrual period. State nm us tax Constant yield method. State nm us tax   Figure the bond premium amortization for each accrual period as follows. State nm us tax Step 1: Determine your yield. State nm us tax   Your yield is the discount rate that, when used in figuring the present value of all remaining payments to be made on the bond (including payments of qualified stated interest), produces an amount equal to your basis in the bond. State nm us tax Figure the yield as of the date you got the bond. State nm us tax It must be constant over the term of the bond and must be figured to at least two decimal places when expressed as a percentage. State nm us tax   If you do not know the yield, consult your broker or tax advisor. State nm us tax Databases available to them are likely to show the yield at the date of purchase. State nm us tax Step 2: Determine the accrual periods. State nm us tax   You can choose the accrual periods to use. State nm us tax They may be of any length and may vary in length over the term of the bond, but each accrual period can be no longer than 1 year and each scheduled payment of principal or interest must occur either on the first or the final day of an accrual period. State nm us tax The computation is simplest if accrual periods are the same as the intervals between interest payment dates. State nm us tax Step 3: Determine the bond premium for the accrual period. State nm us tax   To do this, multiply your adjusted acquisition price at the beginning of the accrual period by your yield. State nm us tax Then subtract the result from the qualified stated interest for the period. State nm us tax   Your adjusted acquisition price at the beginning of the first accrual period is the same as your basis. State nm us tax After that, it is your basis decreased by the amount of bond premium amortized for earlier periods and the amount of any payment previously made on the bond other than a payment of qualified stated interest. State nm us tax Example. State nm us tax On February 1, 2012, you bought a taxable bond for $110,000. State nm us tax The bond has a stated principal amount of $100,000, payable at maturity on February 1, 2019, making your premium $10,000 ($110,000 − $100,000). State nm us tax The bond pays qualified stated interest of $10,000 on February 1 of each year. State nm us tax Your yield is 8. State nm us tax 07439% compounded annually. State nm us tax You choose to use annual accrual periods ending on February 1 of each year. State nm us tax To find your bond premium amortization for the accrual period ending on February 1, 2013, you multiply the adjusted acquisition price at the beginning of the period ($110,000) by your yield. State nm us tax When you subtract the result ($8,881. State nm us tax 83) from the qualified stated interest for the period ($10,000), you find that your bond premium amortization for the period is $1,118. State nm us tax 17. State nm us tax Special rules to figure amortization. State nm us tax   For special rules to figure the bond premium amortization on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. State nm us tax 171-3. State nm us tax Bonds Issued Before September 28, 1985 For these bonds, you can amortize bond premium using any reasonable method. State nm us tax Reasonable methods include: The straight-line method, and The Revenue Ruling 82-10 method. State nm us tax Straight-line method. State nm us tax   Under this method, the amount of your bond premium amortization is the same each month. State nm us tax Divide the number of months you held the bond during the year by the number of months from the beginning of the tax year (or, if later, the date of acquisition) to the date of maturity or earlier call date. State nm us tax Then multiply the result by the bond premium (reduced by any bond premium amortization claimed in earlier years). State nm us tax This gives you your bond premium amortization for the year. State nm us tax Revenue Ruling 82-10 method. State nm us tax   Under this method, the amount of your bond premium amortization increases each month over the life of the bond. State nm us tax This method is explained in Revenue Ruling 82-10, 1982-1 C. State nm us tax B. State nm us tax 46. State nm us tax Choosing To Amortize You choose to amortize the premium on taxable bonds by reporting the amortization for the year on your income tax return for the first tax year you want the choice to apply. State nm us tax You should attach a statement to your return that you are making this choice under section 171. State nm us tax See How To Report Amortization, next. State nm us tax This choice is binding for the year you make it and for later tax years. State nm us tax It applies to all taxable bonds you own in the year you make the choice and also to those you acquire in later years. State nm us tax You can change your decision to amortize bond premium only with the written approval of the IRS. State nm us tax To request approval, use Form 3115. State nm us tax For more information on requesting approval, see section 5 of the Appendix to Revenue Procedure 2011-14 in Internal Revenue Bulletin 2011-4. State nm us tax You can find Revenue Procedure 2011-14 at www. State nm us tax irs. State nm us tax gov/irb/2011-04_IRB/ar08. State nm us tax html. State nm us tax How To Report Amortization Subtract the bond premium amortization from your interest income from these bonds. State nm us tax Report the bond's interest on Schedule B (Form 1040A or 1040), line 1. State nm us tax Under your last entry on line 1, put a subtotal of all interest listed on line 1. State nm us tax Below this subtotal, print “ABP Adjustment,” and the total interest you received. State nm us tax Subtract this amount from the subtotal, and enter the result on line 2. State nm us tax Bond premium amortization more than interest. State nm us tax   If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can deduct the difference as a miscellaneous itemized deduction on Schedule A (Form 1040), line 28. State nm us tax    But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. State nm us tax Any amount you cannot deduct because of this limit can be carried forward to the next accrual period. State nm us tax Pre-1998 election to amortize bond premium. State nm us tax   Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium does not apply to bonds you acquired before 1988. State nm us tax Bonds acquired before October 23, 1986. State nm us tax   The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit. State nm us tax Bonds acquired after October 22, 1986, but before 1988. State nm us tax    The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you choose to treat it as an offset to interest income on the bond. State nm us tax Expenses of Producing Income You deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Schedule A (Form 1040). State nm us tax To be deductible, these expenses must be ordinary and necessary expenses paid or incurred: To produce or collect income, or To manage property held for producing income. State nm us tax The expenses must be directly related to the income or income-producing property, and the income must be taxable to you. State nm us tax The deduction for most income-producing expenses is subject to a 2% limit that also applies to certain other miscellaneous itemized deductions. State nm us tax The amount deductible is limited to the total of these miscellaneous deductions that is more than 2% of your adjusted gross income. State nm us tax For information on how to report expenses of producing income, see How To Report Investment Expenses , later. State nm us tax Attorney or accounting fees. State nm us tax   You can deduct attorney or accounting fees that are necessary to produce or collect taxable income. State nm us tax However, in some cases, attorney or accounting fees are part of the basis of property. State nm us tax See Basis of Investment Property in chapter 4. State nm us tax Automatic investment service and dividend reinvestment plans. State nm us tax   A bank may offer its checking account customers an automatic investment service so that, for a charge, each customer can choose to invest a part of the checking account each month in common stock. State nm us tax Or a bank that is a dividend disbursing agent for a number of publicly-owned corporations may set up an automatic dividend reinvestment service. State nm us tax Through that service, cash dividends are reinvested in more shares of stock after the bank deducts a service charge. State nm us tax   A corporation in which you own stock also may have a dividend reinvestment plan. State nm us tax This plan lets you choose to use your dividends to buy more shares of stock in the corporation instead of receiving the dividends in cash. State nm us tax   You can deduct the monthly service charge you pay to a bank to participate in an automatic investment service. State nm us tax If you participate in a dividend reinvestment plan, you can deduct any service charge subtracted from your cash dividends before the dividends are used to buy more shares of stock. State nm us tax Deduct the charges in the year you pay them. State nm us tax Clerical help and office rent. State nm us tax   You can deduct office expenses, such as rent and clerical help, you incurred in connection with your investments and collecting the taxable income on your investments. State nm us tax Cost of replacing missing securities. State nm us tax   To replace your taxable securities that are mislaid, lost, stolen, or destroyed, you may have to post an indemnity bond. State nm us tax You can deduct the premium you pay to buy the indemnity bond and the related incidental expenses. State nm us tax   You may, however, get a refund of part of the bond premium if the missing securities are recovered within a specified time. State nm us tax Under certain types of insurance policies, you can recover some of the expenses. State nm us tax   If you receive the refund in the tax year you pay the amounts, you can deduct only the difference between the expenses paid and the amount refunded. State nm us tax If the refund is made in a later tax year, you must include the refund in income in the year you received it, but only to the extent that the expenses decreased your tax in the year you deducted them. State nm us tax Fees to collect income. State nm us tax   You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect investment income, such as your taxable bond or mortgage interest, or your dividends on shares of stock. State nm us tax Fees to buy or sell. State nm us tax   You cannot deduct a fee you pay to a broker to acquire investment property, such as stocks or bonds. State nm us tax You must add the fee to the cost of the property. State nm us tax See Basis of Investment Property in chapter 4. State nm us tax    You cannot deduct any broker's fees, commissions, or option premiums you pay (or that were netted out) in connection with the sale of investment property. State nm us tax They can be used only to figure gain or loss from the sale. State nm us tax See Reporting Capital Gains and Losses , in chapter 4, for more information about the treatment of these sale expenses. State nm us tax Investment counsel and advice. State nm us tax   You can deduct fees you pay for counsel and advice about investments that produce taxable income. State nm us tax This includes amounts you pay for investment advisory services. State nm us tax Safe deposit box rent. State nm us tax   You can deduct rent you pay for a safe deposit box if you use the box to store taxable income-producing stocks, bonds, or other investment-related papers and documents. State nm us tax If you also use the box to store tax-exempt securities or personal items, you can deduct only part of the rent. State nm us tax See Tax-exempt income under Nondeductible Expenses, later, to figure what part you can deduct. State nm us tax State and local transfer taxes. State nm us tax   You cannot deduct the state and local transfer taxes you pay when you buy or sell securities. State nm us tax If you pay these transfer taxes when you buy securities, you must treat them as part of the cost of the property. State nm us tax If you pay these transfer taxes when you sell securities, you must treat them as a reduction in the amount realized. State nm us tax Trustee's commissions for revocable trust. State nm us tax   If you set up a revocable trust and have its income distributed to you, you can deduct the commission you pay the trustee for managing the trust to the extent it is to produce or collect taxable income or to manage property. State nm us tax However, you cannot deduct any part of the commission used for producing or collecting tax-exempt income or for managing property that produces tax-exempt income. State nm us tax   If you are a cash-basis taxpayer and pay the commissions for several years in advance, you must deduct a part of the commission each year. State nm us tax You cannot deduct the entire amount in the year you pay it. State nm us tax Investment expenses from pass-through entities. State nm us tax   If you hold an interest in a partnership, S corporation, real estate mortgage investment conduit (REMIC), or a nonpublicly offered mutual fund, you can deduct your share of that entity's investment expenses. State nm us tax A partnership or S corporation will show your share of these expenses on your Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120S). State nm us tax A nonpublicly offered mutual fund will indicate your share of these expenses in box 5 of Form 1099-DIV (or substitute statement). State nm us tax Publicly-offered mutual funds are discussed later. State nm us tax   If you hold an interest in a REMIC, any expenses relating to your residual interest investment will be shown on Schedule Q (Form 1066), line 3b. State nm us tax Any expenses relating to your regular interest investment will appear in box 5 of Form 1099-INT (or substitute statement) or box 9 of Form 1099-OID (or substitute statement). State nm us tax   Report your share of these investment expenses on Schedule A (Form 1040), subject to the 2% limit, in the same manner as your other investment expenses. State nm us tax Including mutual fund or REMIC expenses in income. State nm us tax   Your share of the investment expenses of a REMIC or a nonpublicly offered mutual fund, as described above, are considered to be indirect deductions through that pass-through entity. State nm us tax You must include in your gross income an amount equal to the expenses allocated to you, whether or not you are able to claim a deduction for those expenses. State nm us tax If you are a shareholder in a nonpublicly offered mutual fund, you must include on your return the full amount of ordinary dividends or other distributions of stock, as shown in box 1a of Form 1099-DIV (or substitute statement). State nm us tax If you are a residual interest holder in a REMIC, you must report as ordinary income on Schedule E (Form 1040) the total amounts shown on Schedule Q (Form 1066), lines 1b and 3b. State nm us tax If you are a REMIC regular interest holder, you must include the amount of any expense allocation you received on Form 1040, line 8a. State nm us tax Publicly-offered mutual funds. State nm us tax   Most mutual funds are publicly offered. State nm us tax These mutual funds, generally, are traded on an established securities exchange. State nm us tax These funds do not pass investment expenses through to you. State nm us tax Instead, the dividend income they report to you in box 1a of Form 1099-DIV (or substitute statement) is already reduced by your share of investment expenses. State nm us tax As a result, you cannot deduct the expenses on your return. State nm us tax   Include the amount from box 1a of Form 1099-DIV (or substitute statement) in your income. State nm us tax    A publicly offered mutual fund is one that: Is continuously offered pursuant to a public offering, Is regularly traded on an established securities market, and Is held by or for no fewer than 500 persons at any time during the year. State nm us tax Contact your mutual fund if you are not sure whether it is publicly offered. State nm us tax Nondeductible Expenses Some expenses that you incur as an investor are not deductible. State nm us tax Stockholders' meetings. State nm us tax   You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you have no interest other than owning stock. State nm us tax This is true even if your purpose in attending is to get information that would be useful in making further investments. State nm us tax Investment-related seminar. State nm us tax   You cannot deduct expenses for attending a convention, seminar, or similar meeting for investment purposes. State nm us tax Single-premium life insurance, endowment, and annuity contracts. State nm us tax   You cannot deduct interest on money you borrow to buy or carry a single-premium life insurance, endowment, or annuity contract. State nm us tax Used as collateral. State nm us tax   If you use a single premium annuity contract as collateral to obtain or continue a mortgage loan, you cannot deduct any interest on the loan that is collateralized by the annuity contract. State nm us tax Figure the amount of interest expense disallowed by multiplying the current interest rate on the mortgage loan by the lesser of the amount of the annuity contract used as collateral or the amount of the loan. State nm us tax Borrowing on insurance. State nm us tax   Generally, you cannot deduct interest on money you borrow to buy or carry a life insurance, endowment, or annuity contract if you plan to systematically borrow part or all of the increases in the cash value of the contract. State nm us tax This rule applies to the interest on the total amount borrowed to buy or carry the contract, not just the interest on the borrowed increases in the cash value. State nm us tax Tax-exempt income. State nm us tax   You cannot deduct expenses you incur to produce tax-exempt income. State nm us tax Nor can you deduct interest on money you borrow to buy tax-exempt securities or shares in a mutual fund or other regulated investment company that distributes only exempt-interest dividends. State nm us tax Short-sale expenses. State nm us tax   The rule disallowing a deduction for interest expenses on tax-exempt securities applies to amounts you pay in connection with personal property used in a short sale or amounts paid by others for the use of any collateral in connection with the short sale. State nm us tax However, it does not apply to the expenses you incur if you deposit cash as collateral for the property used in the short sale and the cash does not earn a material return during the period of the sale. State nm us tax Short sales are discussed in Short Sales in chapter 4. State nm us tax Expenses for both tax-exempt and taxable income. State nm us tax   You may have expenses that are for both tax-exempt and taxable income. State nm us tax If you cannot specifically identify what part of the expenses is for each type of income, you can divide the expenses, using reasonable proportions based on facts and circumstances. State nm us tax You must attach a statement to your return showing how you divided the expenses and stating that each deduction claimed is not based on tax-exempt income. State nm us tax   One accepted method for dividing expenses is to do it in the same proportion that each type of income is to the total income. State nm us tax If the expenses relate in part to capital gains and losses, include the gains, but not the losses, in figuring this proportion. State nm us tax To find the part of the expenses that is for the tax-exempt income, divide your tax-exempt income by the total income and multiply your expenses by the result. State nm us tax Example. State nm us tax You received $6,000 interest; $4,800 was tax-exempt and $1,200 was taxable. State nm us tax In earning this income, you had $500 of expenses. State nm us tax You cannot specifically identify the amount of each expense item that is for each income item, so you must divide your expenses. State nm us tax 80% ($4,800 tax-exempt interest divided by $6,000 total interest) of your expenses is for the tax-exempt income. State nm us tax You cannot deduct $400 (80% of $500) of the expenses. State nm us tax You can deduct $100 (the rest of the expenses) because they are for the taxable interest. State nm us tax State income taxes. State nm us tax   If you itemize your deductions, you can deduct, as taxes, state income taxes on interest income that is exempt from federal income tax. State nm us tax But you cannot deduct, as either taxes or investment expenses, state income taxes on other exempt income. State nm us tax Interest expense and carrying charges on straddles. State nm us tax   You cannot deduct interest and carrying charges allocable to personal property that is part of a straddle. State nm us tax The nondeductible interest and carrying charges are added to the basis of the straddle property. State nm us tax However, this treatment does not apply if: All the offsetting positions making up the straddle either consist of one or more qualified covered call options and the optioned stock, or consist of section 1256 contracts (and the straddle is not part of a larger straddle); or The straddle is a hedging transaction. State nm us tax  For information about straddles, including definitions of the terms used in this discussion, see Straddles in chapter 4. State nm us tax   Interest includes any amount you pay or incur in connection with personal property used in a short sale. State nm us tax However, you must first apply the rules discussed in Payments in lieu of dividends under Short Sales in chapter 4. State nm us tax   To determine the interest on market discount bonds and short-term obligations that are part of a straddle, you must first apply the rules discussed under Limit on interest deduction for market discount bonds and Limit on interest deduction for short-term obligations (both under Interest Expenses, earlier). State nm us tax Nondeductible amount. State nm us tax   Figure the nondeductible interest and carrying charges on straddle property as follows. State nm us tax Add: Interest on indebtedness incurred or continued to buy or carry the personal property, and All other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property. State nm us tax Subtract from the amount in (1): Interest (including OID) includible in gross income for the year on the personal property, Any income from the personal property treated as ordinary income on the disposition of short-term government obligations or as ordinary income under the market discount and short-term bond provisions — see Discount on Debt Instruments in chapter 1, The dividends includible in gross income for the year from the personal property, and Any payment on a loan of the personal property for use in a short sale that is includible in gross income. State nm us tax Basis adjustment. State nm us tax   Add the nondeductible amount to the basis of your straddle property. State nm us tax How To Report Investment Expenses To deduct your investment expenses, you must itemize deductions on Schedule A (Form 1040). State nm us tax Enter your deductible investment interest expense on Schedule A (Form1040), line 14. State nm us tax Include any deductible short sale expenses. State nm us tax (See Short Sales in chapter 4 for information on these expenses. State nm us tax ) Also attach a completed Form 4952 if you used that form to figure your investment interest expense. State nm us tax Enter the total amount of your other investment expenses (other than interest expenses) on Schedule A (Form 1040), line 23. State nm us tax List the type and amount of each expense on the dotted lines next to line 23. State nm us tax (If necessary, you can show the required information on an attached statement. State nm us tax ) For information on how to report amortizable bond premium, see Bond Premium Amortization , earlier in this chapter. State nm us tax When To Report Investment Expenses If you use the cash method to report income and expenses, you generally deduct your expenses, except for certain prepaid interest, in the year you pay them. State nm us tax If you use an accrual method, you generally deduct your expenses when you incur a liability for them, rather than when you pay them. State nm us tax Also see When To Deduct Investment Interest , earlier in this chapter. State nm us tax Unpaid expenses owed to related party. State nm us tax   If you use an accrual method, you cannot deduct interest and other expenses owed to a related cash-basis person until payment is made and the amount is includible in the gross income of that person. State nm us tax The relationship, for purposes of this rule, is determined as of the end of the tax year for which the interest or expense would otherwise be deductible. State nm us tax If a deduction is denied under this rule, this rule will continue to apply even if your relationship with the person ceases to exist before the amount is includible in the gross income of that person. State nm us tax   This rule generally applies to those relationships listed in chapter 4 under Related Party Transactions . State nm us tax It also applies to accruals by partnerships to partners, partners to partnerships, shareholders to S corporations, and S corporations to shareholders. State nm us tax   The postponement of deductions for unpaid expenses and interest under the related party rule does not apply to OID, regardless of when payment is made. State nm us tax This rule also does not apply to loans with below-market interest rates or to certain payments for the use of property and services when the lender or recipient has to include payments periodically in income, even if a payment has not been made. State nm us tax Prev  Up  Next   Home   More Online Publications