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capital gain, and net investment income of $5,044. Respondent
recalculated petitioners’ Form 4952 as shown below:
Part I. Total Investment Interest Expense
Line 1. Investment interest expense
paid or accrued in 1997 $2,505
Line 2. Disallowed investment interest
expense from 1996 Form 4952, line 7 24,216
Line 3. Total investment interest expense 26,721
Part II. Net Investment Income
Line 4a. Gross income from property held for
investment (excluding any net gain from the
disposition of property held for investment) 5,044
Line 4b. Net gain from the disposition
of property held for investment $0
Line 4c. Net capital gain from the
disposition of property held for
investment 0
Line 4d. Subtract line 4c from line 4b 0
Line 4e. Enter all or part of the amount
on line 4c that you elect to include
in investment income 0
Line 4f. Investment Income.
Add lines 4a, 4d, and 4e. 5,044
Line 5. Investment expenses 0
Line 6. Net investment income.
Subtract line 5 from line 4f. 5,044
Part III. Investment Interest Expense Deduction
Line 7. Disallowed investment interest
expense to be carried forward to 1998.
Subtract line 6 from line 3. 21,677
Line 8. Investment interest expense deduction.
Enter the smaller of line 3 or 6. 5,044
Respondent’s disallowance of $21,677 of petitioners’
investment interest expense deduction increased petitioners’
taxable income by $21,677 and resulted in a deficiency in income
tax of $6,062. Respondent further determined that petitioners
may carryforward and deduct in 1998 the $21,677 of investment
interest expense disallowed for 1997.2
2We cannot (and do not) decide whether petitioners are
entitled to such a deduction because only the 1997 tax year is
before us. Sec. 7442.
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