Complete List of Tax Topics

Investment Income and Expenses, Publication 550 (2009)

What's New

Alternative minimum tax (AMT) for private activity bonds. Tax-exempt interest on private activity bonds issued in 2009 and 2010 will not be treated as a tax preference item for AMT purposes. For details, see Qualified bonds issued in 2009 or 2010 under Taxable Interest in Chapter 1.

Exclusion of gain on sale of qualified small business stock. The percentage exclusion for qualified small business stock sold is increased from 50% to 75% for stock acquired after February 17, 2009, and before January 1, 2011. Also, the 60% exclusion for certain empowerment zone business stock does not apply to stock acquired after February 17, 2009. See Section 1202 Exclusion under Gain on Qualified Small Business Stock in Chapter 4.

Reminders

U.S. property acquired from a foreign person. If you acquire a U.S. real property interest from a foreign person or firm, you may have to withhold income tax on the amount you pay for the property (including cash, the fair market value of other property, and any assumed liability). Domestic or foreign corporations, partnerships, trusts, and estates may also have to withhold on certain distributions and other transactions involving U.S. real property interests. If you fail to withhold, you may be held liable for the tax, penalties that apply, and interest. For more information, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

Foreign source income. If you are a U.S. citizen with investment income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer.

Employee stock options. If you received an option to buy or sell stock or other property as payment for your services, see Publication 525, Taxable and Nontaxable Income, for the special tax rules that apply.

Alien's individual taxpayer identification number (ITIN). If you are a nonresident or resident alien and do not have and are not eligible to get a social security number (SSN), you must apply for an ITIN. For details on how to do so, see Form W-7, Application for IRS Individual Taxpayer Identification Number, and its instructions. If you already have an ITIN, enter it wherever an SSN is requested on your tax return.An ITIN is for tax use only. It does not entitle you to social security benefits or change your employment or immigration status under U.S. law.

Foreign accounts and trusts. You must complete Part III of Schedule B (Form 1040A or 1040) if you:

• Had a foreign account, or
• Received a distribution from, or were a grantor of, or a transferor to, a foreign trust.

Sale of DC Zone assets. Investments in District of Columbia Enterprise Zone (DC Zone) assets acquired after 1997 and held more than 5 years will qualify for a special tax benefit. If you sell or trade a DC Zone asset at a gain, you may be able to exclude the qualified capital gain from your gross income. This exclusion applies to an interest in, or property of, certain businesses operating in the District of Columbia. For more information about the exclusion, see the Schedule D instructions. For more information about DC Zone assets, see Publication 954, Tax Incentives for Distressed Communities.

Introduction

This publication provides information on the tax treatment of investment income and expenses. It explains what investment income is taxable and what investment expenses are deductible. It explains when and how to show these items on your tax return. It also explains how to determine and report gains and losses on the disposition of investment property and provides information on property trades and tax shelters.

Investment income.

This generally includes interest, dividends, capital gains, and other types of distributions.

Investment expenses.

These include interest paid or incurred to acquire investment property and expenses to manage or collect income from investment property.

Comments and suggestions.

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