I filed an amended tax return for 2020. The IRS adjusted my amended tax return and only returned to me about 80% of the refund TurboTax had calculated. I believe the discrepancy is on form 8960. I have an investment interest expense and TurboTax used entered this for deduction on form 8960 line 9a and also on form 4952 line 8. It appears the IRS credited me the deduction for the investment interest expense from form 4952 but did not credit me the smaller deduction for the same interest expense on form 8960. In other words, I was able to reduce my investment income by the amount of my investment interest expense so I did not have to pay income taxes on that amount, but I still had to pay the net investment income on that amount…which seems odd to me. The income is offset with an expense, but I still have to pay net investment income tax on it.
Reviewing the IRS website instructions for form 8960 it does state “If Form 4952 includes investment interest expense that’s deducted on Schedule E (Form 1040) and already taken into account on line 4a, don’t include the same amount on line 9a.”
So why did TurboTax enter it on both forms? Is this an error in TurboTax’s programing? Or am I entitled to take the deduction on both? Did I inter something incorrectly?
UPDATE: I completely missed the fact that I don't have a schedule E. My investment interest expense appears on schedule A. All my investment income is passive. Now I'm not sure why the IRS disallowed my interest expense deduction from form 8960 since their instructions do permit it.
