Form 4952: Can I choose not to deduct Interest Expense?

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Topic Author
Bambuk
Posts: 62
Joined: Sun Apr 05, 2015 9:34 pm

Form 4952: Can I choose not to deduct Interest Expense?

Post by Bambuk »

Here is the situation:
I have large interest expense carryover from previous years (more than $60K).

My 2023 income is all from Investments and is around $45K (all short term).
I have Medical expenses of around $25K and Mortgage and RE tax totaling around $10K.

When I itemize my deductions using Taxact, it applies $45000 of the interest expense carryover to my investment income and it makes my deductions to be twice as large as my income.

I thought If I only deducted Medical ($25K) and Real Estate expenses (10K) , I would have income of around $10K and would pay 10% tax rate on it ($1K).
I would rather prefer for the interest expense carryover to be used in the future since If my Income is much larger, these 45K in deduction could save me some $15k in taxes (at 30% rates).

Can I somehow elect not to deduct Interest Expenses and still use itemized deductions?
Thanks.
fabdog
Posts: 2540
Joined: Wed Jan 16, 2013 12:59 pm
Location: Williamsburg VA

Re: Form 4952: Can I choose not to deduct Interest Expense?

Post by fabdog »

Sorry. Just like other carry forwards (cap gains, etc) you don't get to pick and choose. If you're itemizing, it will take the carry forward and apply it

you could choose not to itemize and it would carry forward to the next time you itemize.

Mike
Topic Author
Bambuk
Posts: 62
Joined: Sun Apr 05, 2015 9:34 pm

Re: Form 4952: Can I choose not to deduct Interest Expense?

Post by Bambuk »

fabdog wrote: Sun Feb 11, 2024 4:12 pm Sorry. Just like other carry forwards (cap gains, etc) you don't get to pick and choose. If you're itemizing, it will take the carry forward and apply it

you could choose not to itemize and it would carry forward to the next time you itemize.

Mike
Thanks.

I am playing with Taxact and I forced it to use Standard Deductions.
And even though it only deducts standard $13800 from my income , on the form 4952 it says that only $15K is being carried over to the next year.

Is this a bug at Taxact?
Thanks.
toddthebod
Posts: 5218
Joined: Wed May 18, 2022 12:42 pm

Re: Form 4952: Can I choose not to deduct Interest Expense?

Post by toddthebod »

Bambuk wrote: Sun Feb 11, 2024 5:29 pm
fabdog wrote: Sun Feb 11, 2024 4:12 pm Sorry. Just like other carry forwards (cap gains, etc) you don't get to pick and choose. If you're itemizing, it will take the carry forward and apply it

you could choose not to itemize and it would carry forward to the next time you itemize.

Mike
Thanks.

I am playing with Taxact and I forced it to use Standard Deductions.
And even though it only deducts standard $13800 from my income , on the form 4952 it says that only $15K is being carried over to the next year.

Is this a bug at Taxact?
Thanks.
If you'll allow me to play internet lawyer:
(d)Limitation on investment interest
(1)In general
In the case of a taxpayer other than a corporation, the amount allowed as a deduction under this chapter for investment interest for any taxable year shall not exceed the net investment income of the taxpayer for the taxable year.

(2)Carryforward of disallowed interest
The amount not allowed as a deduction for any taxable year by reason of paragraph (1) shall be treated as investment interest paid or accrued by the taxpayer in the succeeding taxable year.
My interpretation of part (2) is that you can only carryforward interest in excess of your net investment income for the year. I don't see how it matters if you actually deduct the interest or not. If you have $60,000 of investment interest expense and $45,000 of net investment income in 2023, you can only carryforward $15,000 of investment interest expense to 2024, regardless of what happens on your tax return. (Note that it says "the amount not allowed as a deduction," not "the amount not taken as a deduction."
Backtests without cash flows are meaningless. Returns without dividends are lies.
Topic Author
Bambuk
Posts: 62
Joined: Sun Apr 05, 2015 9:34 pm

Re: Form 4952: Can I choose not to deduct Interest Expense?

Post by Bambuk »

toddthebod wrote: Sun Feb 11, 2024 6:31 pm

My interpretation of part (2) is that you can only carryforward interest in excess of your net investment income for the year. I don't see how it matters if you actually deduct the interest or not. If you have $60,000 of investment interest expense and $45,000 of net investment income in 2023, you can only carryforward $15,000 of investment interest expense to 2024, regardless of what happens on your tax return. (Note that it says "the amount not allowed as a deduction," not "the amount not taken as a deduction."
Thank you.
Looks like you and Taxact are on the same page.

P.S.
Doesn't seem fair that an expense that hasn't been used cannot be carried over.
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