Investment Interest Expense Calculator
Calculate your Form 4952 deduction under IRC §163(d) for 2025. Compare the §163(d)(4)(B) election to see whether treating long-term capital gains or qualified dividends as ordinary investment income maximizes your current-year deduction.
Interest Expense
From Schedule B / brokerage statements
Disallowed interest from prior Form 4952
Investment Income
Deductible expenses that reduce net investment income
Election-Eligible Income (§163(d)(4)(B))
Can be elected as ordinary NII to increase deduction limit
Can be elected as ordinary NII to increase deduction limit
Tax Rates
Total Interest Expense
$15,000Net Investment Income
$10,000Deductible Amount
$15,000| Item | Amount |
|---|---|
| Current Year Expense | $15,000 |
| Prior Year Carryforward | $0 |
| Total Interest Expense | $15,000 |
| Base Net Investment Income | $10,000 |
| Deductible Amount | $15,000 |
| Carryforward to Next Year | $0 |
The election lets you treat long-term capital gains and qualified dividends as ordinary investment income, increasing your deduction limit — but those amounts lose their preferential tax rate. Compare both scenarios to find the optimal choice.
Without Election
With Optimal Election
RecommendedFrequently asked questions
What is investment interest expense?
Investment interest expense is interest paid on money borrowed to purchase taxable investments — such as margin loans used to buy stocks, bonds, or other investment property. It does not include interest on loans used to buy tax-exempt securities or passive-activity investments. The deduction is reported on Form 4952 and flows to Schedule A as an itemized deduction.
How is the investment interest expense deduction limited?
Under IRC §163(d), investment interest expense is deductible only up to your net investment income for the year. Net investment income generally includes taxable interest, non-qualified dividends, short-term capital gains, and other investment income, reduced by deductible investment expenses. Any disallowed interest carries forward indefinitely to future tax years.
What is the §163(d)(4)(B) election?
The §163(d)(4)(B) election allows you to treat net long-term capital gains and qualified dividends as ordinary investment income, increasing your deduction limit. The trade-off is that the elected amounts are taxed at ordinary income rates instead of the lower 0%/15%/20% preferential rates. This calculator shows you exactly whether the election is worth making at your tax rates.
When should I make the §163(d)(4)(B) election?
The election is beneficial when your additional deduction savings exceed the election's tax cost. This is most likely when your ordinary rate is significantly higher than your LTCG/QD rate, you have a large carryforward, and you have substantial LTCG or qualified dividends available to elect. Use the Election Comparison section above to see the net benefit at your specific rates.
How does the investment interest carryforward work?
Investment interest expense that exceeds your net investment income in the current year is disallowed and carried forward to the next tax year — indefinitely, with no expiration. The carryforward is tracked on Form 4952 and adds to your deductible interest pool in future years when you have sufficient net investment income.
Where do I report investment interest expense on my tax return?
Investment interest expense is reported on IRS Form 4952. The allowable deduction flows to Schedule A (Itemized Deductions), Line 9. You must itemize deductions to claim this deduction. The disallowed carryforward is also tracked on Form 4952 for future years.