For Hawaii residents, the total investment interest expense is calculated by combining all investment-related interest expenses from various sources, including those reported on Form N-158 and Schedule K-1 (Form N20 or N35). Specifically, interest expense on investment debts (such as mortgage interest on property located in Hawaii or points paid on such mortgages) is deductible and must be reported on Form N-158, Part II, line 31b(2). This includes interest paid on debts used to acquire or carry investment property, as long as the property is located in Hawaii.
Key Deductible Investment Interest Expenses
- Investment interest expense includes interest paid or accrued on debt used to purchase or carry property held for investment, subject to limitation rules under Form N-158.
- Investment interest reported from partnerships or other entities (such as amounts shown on Schedule K-1, Form N-20 or Form N-35) must be included in the computation of total investment interest expense when completing Form N-158.
- All investment interest from multiple sources must be combined to determine the allowable deduction on Form N-158.
Important Limitations
- Investment interest expense is limited to the extent of net investment income, as computed on Form N-158. Any disallowed amount is carried forward under the investment interest limitation rules.
- Personal interest (such as credit card interest or personal auto loan interest) is not deductible as investment interest expense.
- The deduction is determined based on federal conformity rules as adopted by Hawaii and is not limited based on the geographic location of the investment property.
- Part-year residents must use applicable allocation rules when determining Hawaii-source investment interest, as required under Form N-15 instructions.
Source:
Form N-11
Form N-15
Form N20 Schedule K-1
Form N35 Schedule K-1
Disclaimer: Always verify details with the most current Federal or State Department of Revenue Forms and Instructions. Tax rules may vary based on individual circumstances. For complex situations, consult a CPA or tax attorney.