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DefenderCSW
Level 1

1099 Misc Box 8 Income

In 2021, I received a 1099 Misc with income in Box 8.  I also paid investment interest in 2021.  I noticed the amount of income in box 8 was not included on Form 4952 on line 4a.  I think it should be and am curious why it isn't.  Thanks for your help!

 

Kind regards,

 

Chris

4 Replies
James-B
Employee Tax Expert

1099 Misc Box 8 Income

Hi @DefenderCSW

 

Thank you for this question!  When you receive an amount in box 8, it represents Substitute Payments in Lieu of Dividends or Interest.  The result is you are receiving a payment in place of a dividend or interest, which is taxed at ordinary rates.  On the back of the 1099-Misc you will see instructions for box 8 that reads “Box 8. Shows substitute payments in lieu of dividends or tax-exempt interest received by your broker on your behalf as a result of a loan of your securities. Report on the “Other income” line of Schedule 1 (Form 1040).” 

 

I’ve found a related article for these types of transactions that I think you will find interesting and pasted it below.  It discusses how these types of payments come into being and the impact on your taxes.

What Is a Substitute Payment in Lieu of Dividends? | The Motley Fool

 

Thanks again and have a great day!

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DefenderCSW
Level 1

1099 Misc Box 8 Income

Hi @James-B ,

 

Thanks for the prompt reply - I appreciate it.  I understand why there is an amount in Box 8 of the 1099 and also where it gets reported on the 1040.  What I am curious about is why is the amount from box 8 of the 1099 not included in the amount shown on line 4a of form 4592?

 

Thanks again for the reply!

 

Kind regards,

 

Chris

James-B
Employee Tax Expert

1099 Misc Box 8 Income

Hi @DefenderCSW

 

Thank you again for the clarification!  When the income is loaned and repaid as an in-lieu payment, it is recharacterized as ordinary income, meaning it is no longer net investment related income.  It drops off the investment reporting and ends up being reported directly on Form 1040 as ordinary income.  As a result, it will no longer be reported on Form 4952 – Investment Interest Expense Deduction or line 4a – Net investment income, gross income from property held for investment.

 

Thanks again!

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DefenderCSW
Level 1

1099 Misc Box 8 Income

Hi @James-B ,

 

Thanks for the follow up!

 

Kind regards,

 

Chris

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