How To Report Investment Interest Expenses

To deduct your investment interest expenses, you must itemize deductions on Schedule A (Form 1040). Enter your deductible investment interest expense on Schedule A (Form 1040), line 9. Include any deductible short sale expenses. (See Short Sales in chapter 4 for information on these expenses.) Also, attach a completed Form 4952 if you used that form to figure your investment interest expense.

Investment expenses from nonpublicly offered mu- tual fund or real estate mortgage investment conduit (REMIC). If you hold an interest in a nonpublicly offered mutual fund, your investment expenses will be shown in box 6 of Form 1099-DIV. Publicly offered mutual funds are discussed later.

If you hold an interest in a REMIC, any expenses relating to your residual interest investment will be shown on Schedule Q (Form 1066), line 3b. Any expenses relating to your regular interest investment will appear in box 5 of Form 1099-INT or box 9 of Form 1099-OID.

Including mutual fund or REMIC expenses in in- come. Your share of the investment expenses of a REMIC or a nonpublicly offered mutual fund, as described above, is considered to be an indirect deduction through that pass-through entity. You must include in your gross income an amount equal to the expenses allocated to you, whether or not you are able to claim a deduction for those expenses. If you are a shareholder in a nonpublicly offered mutual fund, you must include on your return the full amount of ordinary dividends or other distributions of stock, as shown in box 1a of Form 1099-DIV. If you are a residual interest holder in a REMIC, you must report as ordinary income on Schedule E (Form 1040) the total amounts shown on Schedule Q (Form 1066), lines 1b and 3b. If you are a REMIC regular interest holder, you must include the amount of any expense allocation you received on Form 1040 or 1040-SR, line 2b.

Publicly offered mutual funds. Most mutual funds are publicly offered. These mutual funds, generally, are traded

b. Any income from the personal property treated as

ordinary income on the disposition of short-term government obligations or as ordinary income under the market discount and short-term bond provisions—see Discount on Debt Instruments in chapter 1,

c. The dividends includible in gross income for the

year from the personal property, and

d. Any payment on a loan of the personal property for

use in a short sale that is includible in gross income.

Publication 550 (2025) Chapter 3 Investment Expenses 51

on an established securities exchange. These funds do not pass investment expenses through to you. Instead, the dividend income they report to you in box 1a of Form 1099-DIV is already reduced by your share of investment expenses. As a result, you cannot deduct the expenses on your return.

Include the amount from box 1a of Form 1099-DIV in your income.

Mutual funds. A publicly offered mutual fund is one that:

1. Is continuously offered pursuant to a public offering,

2. Is regularly traded on an established securities market, and

3. Is held by or for no fewer than 500 persons at any time during the year.

Contact your mutual fund if you are not sure whether it is publicly offered.

For information on how to report amortizable bond premium, see Bond Premium Amortization , earlier in this chapter.