Hawaii Investment Interest Expense Deduction (Rev. 2015)

Investment Interest Expense Deduction (Rev. 2015)
Form N-158, Rev. 2022, Investment Interest Expense Deduction
Clear Form

Form

N-158
(REV. 2023)

STATE OF HAWAII — DEPARTMENT OF TAXATION

Investment Interest Expense Deduction
†  Attach to Form N-11, N-15, or N-40.

Name(s) as shown on return	

Part I

2023

Total Investment Interest Expense

	 1		 Investment interest expense paid or accrued in 2023. See Instructions...................................................................	

1

	 2		 Disallowed investment interest expense from 2022 Form N-158, line 7...................................................................	

2

	 3		 Total investment interest expense. Add lines 1 and 2...........................................................................................	

3

Part II

Net Investment Income

	 4	a	 Gross income from property held for investment (excluding any net gain from the disposition of
property held for investment).....................................................................................................................................	
	 b	 Net gain from the disposition of property held for investment.............................	
	 c	 Enter the smaller of line 4b or your net capital gain from the disposition
of property held for investment............................................................................	

4a

4b
4c

		
d	 Line 4b minus line 4c.................................................................................................................................................	

4d

		
e	 Enter the amount from line 4c that you elect to include in investment income. See Instructions..............................	

4e

		
f	 Investment income. Add lines 4a, 4d, and 4e............................................................................................................	

4f

	 5		 Investment expenses. See Instructions.....................................................................................................................	

5

	 6		 Net investment income. Line 4f minus line 5. If zero or less, enter -0-...................................................................	

6

Part III

N158_I 2023A 01 VID01

Social security number or employer identification number

Investment Interest Expense Deduction

	 7		 Disallowed investment interest expense to be carried forward to 2024. Line 3 minus line 6. If zero or less,
enter -0- ....................................................................................................................................................................	

7

	 8		 Investment interest expense deduction. Enter the smaller of line 3 or line 6. See Instructions..........................	

8

General Instructions

Who Must File

Specific Instructions

Section references are to the Internal Revenue
Code unless otherwise noted.

If you are an individual, estate, or a trust, you
must file Form N-158 to claim a deduction for
your investment interest expense.

Part I — Total Investment Interest
Expense

Note
Section 265 (with respect to the nondeductibility
of expenses and interest relating to tax-exempt
income) shall be operative; except that it shall
not apply to expenses and interest for royalties
and other income derived from any patents,
copyrights, and trade secrets by an individual or
a qualified high technology business as defined
in section 235-7.3, Hawaii Revised Statutes.
Such expenses shall be deductible.

Exception. You do not have to file Form N-158 if
all of the following apply.

•	 Your

investment income from interest
and ordinary dividends is more than your
investment interest expense.

•	 You

do not have any other deductible
investment expenses.

•	 You do not have any carryover of disallowed
investment interest expense from 2022.

Purpose of Form

Allocation of Interest Expense

Use Form N-158 to figure the amount of
investment interest expense you can deduct for
2023 and the amount you can carry forward to
future years. Your investment interest expense
deduction is limited to your net investment
income.

If you paid or accrued interest on a loan and
used the loan proceeds for more than one
purpose, you may have to allocate the interest.
This is necessary because different rules apply
to investment interest, personal interest, trade or
business interest, home mortgage interest, and
passive activity interest. See federal Publication
535, Business Expenses.

For more information, get federal Publication
550, Investment Income and Ex­penses.

ID NO 01

Line 1
Enter the investment interest expense paid or
accrued during the tax year, regardless of when
you incurred the indebtedness. Investment
interest expense is interest paid or accrued on a
loan or part of a loan that is allocable to property
held for investment (as defined later).
Include investment interest expense reported
to you on Schedule K-1 from a partnership or
an S corporation. Include amortization of bond
premium on taxable bonds purchased after
October 22, 1986, but before January 1, 1988,
unless you elected to offset amortizable bond
premium against the interest payments on the
bond. A taxable bond is a bond on which the
interest is includible in gross income.
Investment interest expense does not
include any of the following:

•	 Home mortgage interest.

FORM N-158

Form N-158
(Rev. 2023)	

•	 Interest expense that is properly allocable to

a passive activity. Generally, a passive activity
is any trade or business activity in which you
do not materially participate and any rental
activity. See the separate instructions for
federal Form 8582, Passive Activity Loss
Limitations, for details.

•	 Any interest expense that is capitalized, such
as construction interest subject to section
263A.

•	 Interest expense related to tax-exempt interest
income under section 265.

•	 Interest

expense, disallowed under section
264, on indebtedness with respect to life
insurance, endowment, or annuity contracts
issued after June 8, 1997, even if the proceeds
were used to purchase any property held for
investment.

Property Held for Investment. Property held
for investment includes property that produces
income, not derived in the ordinary course of
a trade or business, from interest, dividends,
annuities, or royalties. It also includes property
that produces gain or loss, not derived in the
ordinary course of a trade or business, from the
disposition of property that produces these types
of income or is held for investment. However, it
does not include an interest in a passive activity.
Exception. A working interest in an oil or
gas property that you held directly or through an
entity that did not limit your liability is property
held for investment, but only if you did not
materially participate in the activity.

Part II — Net Investment Income
Line 4a
Gross income from property held for investment
includes income, unless derived in the ordinary
course of a trade or business, from:

•	 Interest,
•	 Ordinary dividends (except Alaska Permanent
Fund dividends),

•	 Annuities, and
•	 Royalties.

Include investment income reported to you
on Schedule K-1 from a partnership or an S
corporation. Also include net investment income
from an estate or a trust.
Also include on line 4a (or 4b, if applicable)
net passive income from a passive activity of a
publicly traded partnership (as defined in section
469(k)(2)). See Notice 88-75, 1988-2 C.B. 386,
for details.
Net income from certain passive activities,
such as rental of substantially nondepreciable
property, may have to be recharacterized and
included on line 4a. See federal Publication
925, Passive Activity and At-Risk Rules, or
Regulations section 1.469-2(f)(10) for details.
If you are filing Form N-814, Parent’s
Election to Report Child’s Interest and Dividends,
part or all of your child’s income may be included
on line 4a. See the instructions for Form N-814
for details.
Caution: Do not include on line 4a any net
gain from the disposition of property held for
investment. Instead, enter this amount on line 4b.

Page 2
Line 4b
Net gain from the disposition of property held
for investment is the excess, if any, of your total
gains over your total losses from the disposition
of property held for investment. When figuring
this amount, include capital gain distributions
from mutual funds and capital loss carryovers.
Line 4c
Net capital gain from the disposition of property
held for investment is the excess, if any, of your
net long-term capital gain over your net shortterm capital loss from the disposition of property
held for investment.
Capital gain distributions from mutual funds are
treated as long-term capital gains.
Line 4e
In general, net capital gain from the disposition
of property held for investment is excluded from
investment income. But you can elect to include
part or all of this amount in investment income.
The net capital gain that you elect to include in
investment income on line 4e is not eligible to
be taxed at the 7.25% maximum capital gains
tax rate (Tax on Capital Gains Worksheet in the
Form N-11 or Form N-15 Instructions, or Part VI
of Schedule D (Form N-40)). You should consider
the tax effect of using the capital gains tax rate
before making this election.
To make the election, enter on line 4e
the amount you elect to include in investment
income.
Line 5
See Note on page 1.
Investment expenses are your allowed
deductions, other than interest expense, directly
connected with the production of investment
income. For example, depreciation or depletion
allowed on assets that produce investment
income is an investment expense.
Include investment expenses reported to
you on Schedule K-1 from a partnership or an S
corporation.
Investment expenses do not include any
deductions used in determining your income or
loss from a passive activity.
If you have investment expenses that
are included as a miscellaneous itemized
deduction on line 25 of the Itemized Deductions
Worksheet in the Form N-11 Instructions, on line
25 of the Itemized Deductions Worksheet - For
Nonresidents in the Form N-15 Instructions, or
on line 46 of the Itemized Deductions Worksheet
- For Part-Year Residents in the Form N-15
Instructions, the 2% adjusted gross income
limitation on line 28 of the Itemized Deductions
Worksheet in the Form N-11 Instructions, on line
29 of the Itemized Deductions Worksheet - For
Nonresidents in the Form N-15 Instructions, or
on line 54 of the Itemized Deductions Worksheet
- For Part-Year Residents in the Form N-15
Instructions may reduce the amount you must
include on Form ­N-158, line 5.
Include on Form N-158, line 5, the smaller of:

•	 The investment expenses included on line
25 of the Itemized Deductions Worksheet
in the Form N-11 Instructions, on line 25 of

the Itemized Deductions Worksheet - For
Nonresidents in the Form N-15 Instructions,
or on line 46 of the Itemized Deductions
Worksheet - For Part-Year Residents in the
Form N-15 Instructions, or

•	 The total on line 29 of the Itemized Deductions

Worksheet in the Form N-11 Instructions,
on line 30 of the Itemized Deductions
Worksheet - For Nonresidents in the Form
N-15 Instructions, or on line 55 of the Itemized
Deductions Worksheet - For Part-Year
Residents in the Form N-15 Instructions

Example. Assume line 25 of the Itemized
Deductions Worksheet in the Form N-11
Instructions includes investment expenses of
$3,000, and line 29 of the Itemized Deductions
Worksheet is $1,300 after the 2% adjusted gross
income limitation. Investment expenses from
the Itemized Deductions Worksheet of $1,300
are used to figure the amount of investment
expenses for line 5. If investment expenses
of $800 were included on line 25 and line 29
of the Itemized Deductions Worksheet was
$1,300, investment expenses from the Itemized
Deductions Worksheet of $800 would be used.

Part III — Investment Interest
Expense Deduction
Line 8
You may deduct the amount on line 8 as
investment interest expense.
Individuals. Generally, enter the amount from
line 8 (excluding any amount included on federal
Form 6198, line 4 – see below) on line 13 of the
Itemized Deductions Worksheet in the Form
N-11 Instructions, on line 14 of the Itemized
Deductions Worksheet - For Nonresidents in
the Form N-15 Instructions, or on line 22 of the
Itemized Deduction Worksheet - For Part-Year
Residents in the Form N-15 Instructions, even if
all or part of it is attributable to a partnership or an
S corporation. However, if any part of the interest
expense is attributable to royalties, enter that
part on federal Schedule E. Also, if any part of
the interest is attributable to a trade or business
that is not a passive activity, enter that part on
the schedule where you report other expenses
for that trade or business.
Estates and Trusts. Enter the amount from
line 8 (excluding any amount included on federal
Form 6198, line 4 – see below) on Form N-40,
line 10. However, if any part of the interest is
attributable to a trade or business that is not a
passive activity, enter that part on the schedule
where you report other expenses for that trade
or business.
Federal Form 6198. If any of your deductible
investment interest expense is attributable to an
activity for which you are not at risk, you must
also use federal Form 6198, At-Risk Limitations,
to figure your deductible investment interest
expense. Include the part attributable to the atrisk activity on federal Form 6198, line 4. See
federal Form 6198 and its instructions for details.