Form 8615 line 9

[CI Guy]

I'm asked suddenly to populate line 9 in the form 8615 worksheet (just a popup window) about what portion of line 8 is directly connected to the production of the unearned income. How do I determine this? Line 8 is her itemized deduction. If all her income is unearned, would the amount in line 9 be the same as line 8? I would think it's 100%. Any ideas?

[JohnW152]

It may be, but not necessarily. Only that portion of Schedule A, line 17 that's directly connected to the production of unearned income would be entered.

The popup you're seeing refers to the portion of the amount on line 17 of your child's Schedule A (Form 1040), or line 8 of their Schedule A (Form 1040-NR), that's directly connected with the production of the unearned income that's shown on line 1 of Form 8615.

According to Directly connected in the Instructions for Form 8615:

Itemized deductions are directly connected with the production of unearned income if they are for expenses to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees.

[CI Guy]

Line 8 (her itemized deductions) are simply last year's state taxes paid. Are these considered unrelated to the production of her unearned income? If so, then I suppose the portion would be zero in line 9. Is that correct? 

[JohnW152]

That's correct.  You don't consider state taxes paid on investment income as being directly connected with the production of unearned income.

As Directly connected in the Instructions for Form 8615 states:

Itemized deductions are directly connected with the production of unearned income if they are for expenses to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. 

Taxes on unearned income aren't expenses paid to produce or collect taxable income, and they're not needed to manage, conserve or maintain income-producing property.