Clarification Needed: Do Stock Dividends Count as Net Investment Income for Form 4952 Interest Deduction?

Looking at Form 4952, I can see why you're confused! To answer your specific question: Yes, stock dividends absolutely count as "property held for investment" for net investment income purposes. The form is actually tracking two things here - on line 4a, you include ALL your investment income (including dividends, interest, capital gains, rental income, etc.). Then on line 4b, you separately list how much of that total was qualified dividends, which is needed for other calculations. For your housing strategy, you're on the right track. The investment interest expense deduction allows you to deduct interest on loans used to purchase taxable investments up to the amount of your net investment income. This includes dividends from stocks, interest from bonds, capital gains, etc. Your delayed financing approach could work if you have enough investment income to offset the interest. Just remember you'll need to clearly document that the borrowed money went directly into taxable investments (not tax-advantaged accounts like IRAs). One thing to watch for: capital gains and qualified dividends taxed at preferential rates don't automatically count toward your net investment income unless you make an election to treat them as ordinary income (which means giving up the lower tax rates).

I struggled with this exact issue last year when setting up my investment property financing. I found a tool that really helped me understand my options - https://taxr.ai has a document analyzer that walks through these complex tax forms and explains each line in plain English. What I learned was that stock dividends DO count as investment income for Form 4952, but there's a catch with qualified dividends as the expert mentioned above. I uploaded my investment statements and loan docs, and the tool showed me exactly how to trace my borrowed funds to maximize my interest deduction. In your case with that $2.7m house, the tool would help you calculate whether you're better off with the $750k mortgage interest deduction or the investment interest expense route. It also shows you how to properly document the paper trail for the IRS if you go the delayed financing route.

I want to follow up on my earlier skepticism about online tax tools. I ended up trying https://taxr.ai for my investment property refinance situation, and I'm actually impressed. It correctly identified that my stock dividends ($38k last year) could count toward my net investment income for interest deduction purposes. The tool showed me exactly where on Form 4952 to report everything and calculated that I'd save about $7,200 by making the election to treat my qualified dividends as ordinary income. What really surprised me was how it explained the tracing rules for loan proceeds. I learned that timing matters a lot - you need to document the investment of borrowed funds within 30 days of receiving them for the clearest paper trail. This was something my previous accountant never mentioned! For anyone dealing with investment interest expenses, this was genuinely helpful. I'm still using my accountant for the final review, but now I understand what we're doing instead of just nodding along.

If you're struggling to reach someone at the IRS to get clarification on Form 4952 and investment interest deductions, I highly recommend trying Claimyr (https://claimyr.com). I was in a similar position last year - confused about investment interest deductions and couldn't get through to the IRS after trying for WEEKS. Claimyr got me connected to an actual IRS agent in about 20 minutes instead of the 3+ hour wait I kept hitting. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent walked me through exactly how investment income is treated on Form 4952, confirmed that stock dividends absolutely count as investment income, and explained the election process for qualified dividends. Having that direct confirmation from the IRS gave me confidence to proceed with my investment strategy.

I need to eat my words about being skeptical of Claimyr. After posting my comment yesterday, I decided to try it as a last resort. I've been trying to get clarification about investment interest deductions for my brokerage account and kept getting disconnected after waiting on hold for 2+ hours. I used the service this morning, and they called me back in 45 minutes with an IRS representative on the line! The agent confirmed that stock dividends and interest count as investment income for Form 4952 purposes. She also explained that I need to file Form 8949 to make the election to treat qualified dividends as ordinary income if I want to count them toward my net investment income. This saved me so much time and frustration. For anyone dealing with complex investment interest questions like the original poster, being able to get official IRS guidance quickly is incredibly valuable.

One thing no one's mentioned yet is that the investment interest expense deduction is reported on Schedule A, so you'll need to itemize deductions to benefit from it. This means you need to have enough total itemized deductions to exceed the standard deduction. For 2025, if you're married filing jointly, the standard deduction is projected to be around $29,200. So make sure your total itemized deductions (mortgage interest, state/local taxes, charitable contributions, investment interest, etc.) exceed that amount before counting on this strategy.

Has anyone successfully done what the OP is suggesting with delayed financing? I'm considering a similar strategy but worried about IRS scrutiny. How detailed does the "clear tracing" of funds need to be?

This is a great discussion thread! I've been dealing with a similar situation and want to add a few practical points from my experience with Form 4952. First, regarding your $2.7M house strategy - you're absolutely correct that stock dividends count as investment income for Form 4952 purposes. I've successfully used this approach with my own investment portfolio. One thing I learned the hard way: timing is crucial for the delayed financing approach. The IRS has specific rules about when borrowed funds are considered "used for investment." You generally have 30 days from receiving the loan proceeds to invest them, and another 30 days to allocate the interest expense properly on your books. Also, keep meticulous records! I created a dedicated investment account solely for the borrowed funds and documented every transaction. This made my tax preparation much smoother and gave me confidence if the IRS ever questions the deduction. For your situation with potentially $108k in deductible interest, make sure you have sufficient net investment income to absorb it all. Any excess investment interest expense carries forward to future years, which is helpful but means you don't get the immediate tax benefit. One last tip: consider consulting with a tax professional before implementing this strategy, especially given the dollar amounts involved. The savings can be substantial, but the documentation requirements are strict.