Enter the amount of interest (subject to limitations) paid or incurred by the estate or trust on amounts borrowed by the estate or trust, or on debt acquired by the estate or trust (for example, outstanding obligations from the decedent) that is not claimed elsewhere on the return.
If the proceeds of a loan were used for more than one purpose (for example, to purchase a portfolio investment and to acquire an interest in a passive activity), the fiduciary must make an interest allocation according to the rules in Temporary Regulations section 1.163-8T.
Do not include interest paid on indebtedness incurred or continued to purchase or carry obligations on which the interest is wholly exempt from income tax.
Personal interest is not deductible. Examples of personal interest include interest paid on:
Revolving charge accounts used to purchase personal use property;
Personal notes for money borrowed from a bank, credit union, or other person;
Installment loans on personal use property; and
Underpayments of federal, state, or local income taxes.
Interest that is paid or incurred on indebtedness allocable to a trade or business (including a rental activity) should be deducted on the appropriate line of Schedule C (or C-EZ), E, or F (Form 1040), the net income or loss from which is shown on line 3, 5, or 6 of Form 1041.
Types of interest to include on line 10 are:
Any investment interest (subject to limitations—see below);
Any qualified residence interest (see later); and
Any interest payable under section 6601 on any unpaid portion of the estate tax attributable to the value of a reversionary or remainder interest in property for the period during which an extension of time for payment of such tax is in effect.
Generally, net investment income is the excess of investment income over investment expenses. Investment expenses are those expenses (other than interest) allowable after application of the 2% floor on miscellaneous itemized deductions.
The amount of the investment interest deduction may be limited. Use Form 4952, Investment Interest Expense Deduction, to figure the allowable investment interest deduction.
If you must complete Form 4952, check the box on line 10 of Form 1041 and attach Form 4952. Then, add the deductible investment interest to the other types of deductible interest and enter the total on line 10.
See section 163(h)(3) for a definition of qualified residence interest and for limitations on indebtedness.
Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006).
Mortgage insurance provided by the Department of Veterans Affairs and the Rural Housing Service is commonly known as a funding fee and guarantee fee, respectively. These fees can be deducted fully in 2012 if the mortgage insurance contract was issued in 2012. Contact the mortgage insurance issuer to determine the deductible amount if it is not included in box 4 of Form 1098.
|1.||Enter the total premiums the estate or trust paid in 2012 for qualified mortgage insurance for a contract issued after December 31, 2006||1.|
|2.||Enter the estate's or trust's AGI||2.|
|4.||Is the amount on line 2 more than the amount on line 3?|
|The deduction is not limited. Include the amount from line 1 above on Form 1041, line 10. Do not complete the rest of this worksheet.|
|Subtract line 3 from line 2. If the result is not a multiple of $1,000, increase it to the next multiple of $1,000. For example, increase $425 to $1,000, increase $2,025 to $3,000, etc.||4.|
|5.||Divide line 4 by $10,000. Enter the result as a decimal. If the result is 1.0 or more, enter 1.0||5.||.|
|6.||Multiply line 1 by line 5||6.|
|7.||Qualified mortgage insurance premiums deduction. Subtract line 6 from line 1. Enter the result here and include the amount on Form 1041, line 10||7.|
If the estate or trust paid mortgage insurance premiums allocable to periods after the end of its tax year, such premiums must be allocated over the shorter of:
The stated term of the mortgage, or
84 months, beginning with the month the insurance was obtained.
The premiums are treated as paid in the year to which they are allocated. If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. See Pub. 936 for details. These allocation rules do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service.
The estate or trust cannot deduct mortgage insurance premiums if the estate's or trust's AGI is more than $109,000. If the estate's or trust's AGI is more than $100,000, its deduction is limited and you must use the worksheet below to figure the deduction. See How to figure AGI for estates and trusts, later, for information on figuring AGI.