Can I deduct TY2020's Disallowed Investment Interest Expense in TY2023 after using standard deduction?

3 Thanks for the response! That's a relief to hear. So just to clarify, when FreeTaxUSA asks for the Form 4952 information from 2022, should I just enter $0 since I didn't file that form last year? Or do I need to somehow indicate that I have a carryover from 2020 specifically? Also, will I need to provide any documentation to prove I had that disallowed amount from 2020, or does the IRS already have that information on file?

8 For the FreeTaxUSA question about Form 4952 from 2022, you should enter the $798 carryover amount from 2020 since that's your current carryover balance. The software is just asking for what you're carrying forward, regardless of which specific year it originated from. You generally don't need to provide additional documentation when e-filing, but I would recommend keeping your 2020 tax return and Form 4952 in your records. The IRS doesn't automatically track your carryover amounts for you, so having that documentation is important if you're ever audited. The burden of proof is on you to show where the carryover originated.

5 That sounds useful! Does the tool actually look at your previous tax returns to find the carryover amounts? Or do you need to know what they are already? I'm not super organized with my tax documents and might have trouble finding my 2020 return to check that Form 4952.

17 I'm skeptical about using third-party services for tax advice. Couldn't you just call the IRS directly and ask them about carryover rules? I always worry about privacy when uploading tax docs to some random website.

12 Yes, the tool can analyze your previous returns if you upload them, which helps identify carryover amounts you might have forgotten about or weren't sure you could still claim. It's especially helpful if you're not super organized with your tax documents since it can extract the relevant information from prior year returns. Regarding privacy concerns, I understand the hesitation. While you can certainly call the IRS for general rules, they typically won't look through your specific returns to tell you what carryover amounts you have available. For personalized analysis, you either need a tax professional or a secure tool. Their site uses bank-level encryption, and I personally felt comfortable with their privacy policy after reviewing it.

7 Wait, how does this actually work? Do they just call the IRS for you? I've waited on hold for hours with the IRS before giving up. If this actually works it would be amazing.

17 This sounds too good to be true. The IRS phone lines are notoriously impossible to get through. How do they magically get you to the front of the line? And are you sure the person you talked to was actually an IRS agent and not just someone pretending to be one?

14 They don't call the IRS for you - they use technology to monitor the hold queue and then call you when they detect your call is about to be answered by an agent. You're still the one talking directly to the IRS, they just save you from waiting on hold for hours. I was definitely connected to a real IRS agent. The service just gets you through the hold queue, then transfers you directly to the IRS line when an agent picks up. The person I spoke with had full access to my tax records and was able to verify my identity with my personal information, just like any regular IRS call. There's no way a third party could fake that level of access to your tax information.

1 That's a great point I hadn't considered. My investment income has actually increased quite a bit in 2023 compared to previous years, which is partly why I'm itemizing this time. I think I should have enough to cover the $798 carryover plus my current year investment interest. Do dividends count as investment income for this purpose? I have some dividend-paying stocks that generated around $3,000 this year.

22 Yes, qualified dividends and capital gain distributions can count as investment income for this purpose, but there's a catch. By default, qualified dividends and long-term capital gains aren't included in your net investment income for the Form 4952 calculation since they already receive preferential tax treatment. However, you can elect to include them in your investment income if you want to deduct more investment interest. The trade-off is that any qualified dividends or long-term capital gains you include will be taxed at your ordinary income tax rates instead of the lower capital gains rates. This is an election you make directly on Form 4952. For your situation with $3,000 in dividends, you'll need to determine if they're qualified dividends and whether it makes sense to include them based on your marginal tax rate versus the value of the additional deduction.

8 There's no time limit! Investment interest expense carryovers can be carried forward indefinitely until you're able to use them. Unlike some other tax attributes like capital losses (which have a $3,000 per year limit against ordinary income), there's no annual limit on how much investment interest expense you can deduct - it's just limited by your net investment income for the year. So those 5-year-old carryovers are still valid as long as you have documentation to support them if asked.