Deductions & credits

Critter-3 · ‎October 9, 2020

Save a PDF of the return and review the worksheets that the program filled in to see what is happening ... see the IRS information below ...

Rule 6—Your Investment Income Must Be $3,600 or Less https://www.irs.gov/publications/p596

You can’t claim the earned income credit unless your investment income is $3,600 or less. If your investment income is more than $3,600, you can’t claim the credit.

Use Worksheet 1 in this chapter to figure your investment income.

Worksheet 1. Investment Income

Use this worksheet to figure investment income for the earned income credit when you file Form 1040 or 1040-SR.

Interest and Dividends
1.	Enter any amount from Form 1040 or 1040-SR, line 2b	1.	_____
2.	Enter any amount from Form 1040 or 1040-SR, line 2a, plus any amount on Form 8814, line 1b	2.	_____
3.	Enter any amount from Form 1040 or 1040-SR, line 3b	3.	_____
4.	Enter the amount from Schedule 1 (Form 1040 or 1040-SR), line 8, that is from Form 8814 if you are filing that form to report your child's interest and dividend income on your return. (If your child received an Alaska Permanent Fund dividend, use Worksheet 2 in this chapter to figure the amount to enter on this line.)	4.	_____
Capital Gain Net Income
5.	Enter the amount from Form 1040 or 1040-SR, line 6. If the amount on that line is a loss, enter -0-	5.	_____
6.	Enter any gain from Form 4797, Sales of Business Property, line 7. If the amount on that line is a loss, enter -0-. (But, if you completed lines 8 and 9 of Form 4797, enter the amount from line 9 instead.)	6.	_____
7.	Subtract line 6 of this worksheet from line 5 of this worksheet. (If the result is less than zero, enter -0-.)	7.	_____
Royalties and Rental Income From Personal Property
8.	Enter any royalty income from Schedule E, line 23b, plus any income from the rental of personal property shown on Schedule 1 (Form 1040 or 1040-SR), line 8	8.	_____
9.	Enter any expenses from Schedule E, line 20, related to royalty income, plus any expenses from the rental of personal property deducted on Schedule 1 (Form 1040 or 1040-SR), line 22	9.	_____
10.	Subtract the amount on line 9 of this worksheet from the amount on line 8. (If the result is less than zero, enter -0-.)	10.	_____
Passive Activities
11.	Enter the total of any net income from passive activities (such as income included on Schedule E, line 26, 29a (col. (h)), 34a (col. (d)), or 40; or an ordinary gain identified as "FPA" on Form 4797, line 10). (See instructions below for lines 11 and 12.)	11.	_____
12.	Enter the total of any losses from passive activities (such as losses included on Schedule E, line 26, 29b (col. (g)), 34b (col. (c)), or 40; or an ordinary loss identified as "PAL" on Form 4797, line 10). (See instructions below for lines 11 and 12.)	12.	_____
13.	Combine the amounts on lines 11 and 12 of this worksheet. (If the result is less than zero, enter -0-.)	13.	_____
14.	Add the amounts on lines 1, 2, 3, 4, 7, 10, and 13. Enter the total. This is your investment income	14.	_____
15.	Is the amount on line 14 more than $3,600? □ Yes. You can’t take the credit. □ No. Go to Step 3 of the Form 1040 and 1040-SR instructions for line 18a to find out if you can take the credit (unless you are using this publication to find out if you can take the credit; in that case, go to Rule 7, next).

Instructions for lines 11 and 12. In figuring the amount to enter on lines 11 and 12, don’t take into account any royalty income (or loss) included on line 26 of Schedule E or any income (or loss) included in your earned income or on line 1, 2, 3, 4, 7, or 10 of this worksheet. To find out if the income on line 26 or line 40 of Schedule E is from a passive activity, see the Schedule E instructions. If any of the rental real estate income (or loss) included on Schedule E, line 26, isn’t from a passive activity, print "NPA" and the amount of that income (or loss) on the dotted line next to line 26.

Worksheet 2. Worksheet for Line 4 of Worksheet 1

Complete this worksheet only if Form 8814 includes an Alaska Permanent Fund dividend.

Note. Fill out a separate Worksheet 2 for each Form 8814.
1.	Enter the amount from Form 8814, line 2a	1.	_____
2.	Enter the amount from Form 8814, line 2b	2.	_____
3.	Subtract line 2 from line 1	3.	_____
4.	Enter the amount from Form 8814, line 1a	4.	_____
5.	Add lines 3 and 4	5.	_____
6.	Enter the amount of the child's Alaska Permanent Fund dividend	6.	_____
7.	Divide line 6 by line 5. Enter the result as a decimal (rounded to at least three places)	7.	_____
8.	Enter the amount from Form 8814, line 12	8.	_____
9.	Multiply line 7 by line 8	9.	_____
10.	Subtract line 9 from line 8. Enter the result on line 4 of Worksheet 1	10.	_____
	(If filing more than one Form 8814, enter on line 4 of Worksheet 1 the total of the amounts on line 10 of all Worksheets 2.)

Example—Completing Worksheet 2.

Your 10-year-old child has taxable interest income of $400, an Alaska Permanent Fund dividend of $1,000, and ordinary dividends of $1,100, of which $500 are qualified dividends. You choose to report this income on your return. You enter $400 on line 1a of Form 8814, $2,100 ($1,000 + $1,100) on line 2a, and $500 on line 2b. After completing lines 4 through 11, you enter $240 on line 12 of Form 8814 and line 8 of Schedule 1 (Form 1040 or 1040-SR). On Worksheet 2, you enter $2,100 on line 1, $500 on line 2, $1,600 on line 3, $400 on line 4, $2,000 on line 5, $1,000 on line 6, 0.500 on line 7, $240 on line 8, $120 on line 9, and $120 on line 10. You then enter $120 on line 4 of Worksheet 1.