4952A: Investment Interest Expense Deduction (2025)
Alabama · Alabama DOR · Used for tax years 2025
Alabama Form 4952A calculates the investment interest expense deduction for 2025 and any disallowed expense to carry forward to 2026. It reports current-year investment interest expense, disallowed expense from 2024, and net investment income.
Who files this form
Individuals, estates, and trusts claiming an investment interest expense deduction must complete Form 4952A and attach it to their tax return, unless all four of these conditions apply:
- Your only investment income was interest or dividends.
- You have no other deductible expenses connected with producing that interest or those dividends.
- Your investment interest expense is no more than your investment income.
- You have no investment interest expense carryovers from 2024.
What you'll need
Have the following information and forms available, as applicable:
- Your name as shown on your return, identifying number, and return type: individual, estate, or trust.
- Amounts of investment interest paid or accrued in 2025.
- Your 2024 Form 4952A, line 5, for any disallowed interest carried forward.
- Information about investment income and deductible investment expenses, including net investment income from an estate or trust.
- Schedules K-1 from partnerships or S corporations reporting investment interest, income, or expenses.
- Schedule A (Form 40 or 40NR) and any other forms or schedules reporting investment expenses.
How to file
Attach Form 4952A to your tax return.
- Enter 2025 investment interest expense on line 1 and any carryover from 2024 Form 4952A, line 5, on line 2.
- Add lines 1 and 2 on line 3. Enter net investment income on line 4.
- For line 5, subtract line 4 from line 3. If the result is zero or less, enter zero.
- On line 6, enter the smaller of line 3 or line 4.
Individuals: Enter the line 6 deduction on Schedule A (Form 40 or 40NR), line 13. Enter any portion attributable to royalties on Schedule E (Form 40 or 40NR) instead.
Estates and trusts: Enter the deduction on Form 41, Page 3, Schedule C, Column C, Line 10.
Common mistakes
- Applying the federal passive income limitation. The form cautions that Alabama's investment interest deduction is computed as if that limitation did not exist.
- Leaving out net capital gain from investment property. The same caution states that this gain is included in investment income for Alabama purposes.
- Missing investment interest reported on Schedule K-1. The line 1 instructions specifically remind you to include investment interest expense reported by a partnership or S corporation.
Questions people ask
What does Form 4952A calculate?
It calculates the investment interest expense you can deduct for the current year and any amount you can carry forward to future years.
How much investment interest can I deduct for 2025?
Line 6 is the smaller of your total investment interest expense on line 3 or your net investment income on line 4.
What happens to disallowed investment interest?
The amount on line 5 is carried forward to 2026. Calculate it by subtracting line 4 from line 3, entering zero if the result is zero or less.
What is net investment income?
It is the excess, if any, of investment income over investment expenses. Investment expenses are allowed deductions, other than interest expense, directly connected with producing investment income.
Can I include home mortgage interest?
No. Investment interest expense does not include home mortgage interest or capitalized interest, such as construction interest subject to Federal Section 263A.