Helen Derby borrowed $150,000 to acquire a parcel of land to be held for investment purposes. During the current year, she reported AGI of $90,000 and paid interest of $12,000 on the loan. Other items related to Helen's investments include the following:
Investment and annuity income | $11,000 | Long-term capital gain on sale of stock | 3,500 | Real estate tax on the investment land | 800 | |
Helen is unmarried, does not itemize her deductions and does not elect to treat the capital gain as investment income. Helen did not have a disallowed investment interest expense amount from the prior year.
a. Helen's net investment income is $. Helen's investment interest expense deduction in the current year is $.
b. Indicate whether the following statements are "True" or "False" regarding the treatment of the portion of Helen's investment interest that is disallowed in the current year.
| The investment interest disallowed is carried over and becomes investment interest expense in the subsequent year. | | | The investment interest disallowed is lost and not subject to any carryover. | | | The investment interest disallowed is carried over and may be used to offset any type of income in the subsequent year. | |
c. Complete Helen's Form 4952 for the current year. For this purpose, assume that she chooses not to include the long-term capital gain as investment income.
- Enter all amounts as positive numbers.
- If an amount is zero, enter "0".
Form 4952 Department of the Treasury Internal Revenue Service (99) | Investment Interest Expense Deduction Go to www.irs.gov/form4952 for the latest information. Attach to your tax return. | OMB No. 1545-0191 | 2018 Attachment Sequence No. 51 | Name(s) shown on return Helen Derby | Identifying number 123-45-6789 | Part I | Total Investment Interest Expense | 1 | Investment interest expense paid or accrued in 2018 (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . | 1 | | | 2 | Disallowed investment interest expense from 2017 Form 4952, line 7 . . . . . . . . . . . . . . . . . . . . . . . . . | 2 | | | 3 | Total investment interest expense. Add lines 1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 3 | | | Part II | Net Investment Income | 4a | 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 2019. 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 | | | For Paperwork Reduction Act Notice, see page 4. | Cat. No. 13177Y | Form 4952 (2018) | |