Form 4952 - Rent

[Snaggletooth]

Investment Income for purposes of providing the ceiling for deductible interest...

Does "investment income" include Rent? The IRS instructions (and TTB instructions) do not mention including rent or excluding rent...

[Gary2]

The instructions for line 4a specify "income ... from interest, ordinary dividends (except Alaska Permanent Fund dividends), annuities, and royalties." That excludes rental income, in general.

It goes on to say "Net income from certain passive activities, such as rental of substantially nondepreciable property, may have to be recharacterized and included on line 4a." This both confirms that most rental income is excluded, but that there may be special cases in need of further research.

Perhaps a better question is whether the sale of a rental property is included on line 4d. It's not uncommon for a rental property to run tax loses, with the profit motive being driven by the anticipated appreciation.

[Snaggletooth]

Confused

Let me redefine the question into a multiple choice. I've always been told that the downside of deducting expense on 4952 is that you have to give up preferable capital gains treatment.

This means you have to give up capital gains rate on:
a) The item for which the loan creates the interest paid on lines 1 or 2
b) Any and all items which are entered on multiple lines of line 4
c) All of the above
d) None of the above