Investment Interest

Investment income vs Investment interest

What is investment income?

Investment income is the income you make from investment property. Investment income includes:

• interest

• dividends

• royalties

• annuities

Investment income does not include income from a passive activity (silent partner business activities) or from rental real estate.

What is investment interest?

Investment interest is the interest paid on money borrowed to buy property held for investment. Your investment interest expense deduction is limited to your net investment income.

Can I carryover investment interest in excess of investment income?

The excess of investment interest over your total investment income can be carried over to future years. This means you can deduct the excess in future years.

How to deduct investment interest expenses?

You generally use Form 4952, Investment Interest Expense Deduction, to determine the amount deductible. If your interest expense is less than your investment income and/or your interest is the only investment expense you may not need to file the form 4952.