How do I elect to have dividends taxed as ordinary income?

March 8, 2004

Subject:  Question on an article you wrote
From:  Jay
Date:  Sat, 07 Feb 2004

I found an article you wrote titled:

Not all dividends qualify for tax rate break

August 1, 2003

In there you state:

"Since dividends that qualify for the low rates are not investment income in determining the deduction limitation for investment interest expense, investors who margin their investments will have special headaches to deal with. A taypayer may elect to have otherwise qualifying dividends taxed as ordinary income to enable more investment interest expense to be deducted."

How do I elect to have otherwise qualifying dividends taxed as ordinary income to enable more investment interest expense to be deducted, and how do I report on Schedule B the amount included on line 1b of Form 1099-DIV?

thanks
Jay

Answer

Date:  Mon, 01 Mar 2004

Hello Jay,

The election is made at line 4g, Part II, Form 4952.

The qualified dividends are not separately reported on Schedule B. The total dividends are listed on that form. Total qualified dividends are disclosed at line 9b on Form 1040. Then qualified dividends are listed at line 23, Part IV, Schedule D and reduced at line 25 by the amount elected to be taxed at short-term capital gains rates.

Good luck!
Mike Gray

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