| Publication 550 |
2003 Tax Year |
Publication 550
Introductory Material
This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Important Changes
for 2002
Reporting interest and dividends. . Interest or ordinary dividend income that exceeds a certain amount must be reported on a separate schedule. For 2002, this
amount has increased. If
you file Form 1040A, you must now attach Schedule 1 to your return if your interest or dividend income is more than $1,500;
if you file Form 1040, you
must now attach Schedule B to your return if your interest or dividend income is more than $1,500. Before 2002, you had to
attach Schedule 1 or
Schedule B if your interest or dividend income was more than $400.
Interest on New York Liberty bonds. . New York Liberty bonds are bonds issued after March 9, 2002, to finance the construction and rehabilitation of real property
in a newly designated
“Liberty Zone ”of New York City. Interest on these bonds is tax exempt.
Tax shelter disclosure statement. . You must file a disclosure statement for each reportable tax shelter transaction in which you participated, directly or indirectly,
if your income
tax liability was affected by the transaction. See Tax Shelter Disclosure Statement under Investor Reporting in chapter 2.
Important Changes
for 2003
Reportable transactions. . You may have to disclose information about certain transactions (called “reportable transactions”) in which you participated, directly or
indirectly. This disclosure requirement applies to reportable transactions entered into after 2002. Reportable transactions
include transactions that
are the same or substantially similar to tax avoidance transactions identified by the IRS, transactions that are offered under
conditions of
confidentiality, and transactions that result in large losses. You must disclose information about reportable transactions
on Form 8886,
Reportable Transaction Disclosure Statement. For more information, see the instructions for Form 8886.
Sale of DC Zone assets. Beginning in 2003, investments in District of Columbia Enterprise Zone (DC Zone) assets held more than 5 years will qualify
for a special tax
benefit. If you sell or trade a DC Zone asset at a gain, you will not have to include any qualified capital gain in your gross
income. This exclusion
applies to an interest in, or property of, certain businesses operating in the District of Columbia. For more information,
see Publication 954,
Tax Incentives for Empowerment Zones and Other Distressed Communities.
Important Reminders
8% capital gain rate. The 10% capital gain rate was lowered to 8% for qualified 5-year gain. For more information, see Capital Gain Tax Rates in chapter 4.
18% capital gain rate. Beginning in 2006, the 20% capital gain rate will be lowered to 18% for qualified 5-year gain from property.
U.S. property acquired from a foreign person. If you acquire a U.S. real property interest from a foreign person or firm, you may have to withhold income tax on the amount
you pay for the
property (including cash, the fair market value of other property, and any assumed liability). Domestic or foreign corporations,
partnerships, trusts,
and estates may also have to withhold on certain distributions and other transactions involving U.S. real property interests.
If you fail to withhold,
you may be held liable for the tax, penalties that apply, and interest. For more information, see Publication 515, Withholding of Tax on
Nonresident Aliens and Foreign Entities.
Foreign source income. If you are a U.S. citizen with investment income from sources outside the United States (foreign income), you must report
that income on your tax
return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or
not you receive a Form 1099
from the foreign payer.
Alien's individual taxpayer identification number (ITIN). The IRS will issue an ITIN to a nonresident or resident alien who does not have and is not eligible to get a social security
number (SSN). To apply
for an ITIN, file Form W–7, Application for IRS Individual Taxpayer Identification Number, with the IRS. Enter your ITIN wherever an
SSN is requested on a tax return. If you must include another person's SSN on your return and that person does not have and
cannot get an SSN, enter
that person's ITIN.
An ITIN is for tax use only. It does not entitle you to social security benefits or change your employment or immigration
status under U.S. law.
Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of
missing children
selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children
home by looking at the
photographs and calling 1–800–THE-LOST (1–800– 843–5678) if you recognize a child.
Introduction
This publication provides information on the tax treatment of investment income and expenses. It explains what investment
income is taxable and
what investment expenses are deductible. It explains when and how to show these items on your tax return. It also explains
how to determine and report
gains and losses on the disposition of investment property and provides information on property trades and tax shelters.
There is a glossary at the end of this publication that defines many of the terms used.
Investment income.
This generally includes interest, dividends, capital gains, and other types of distributions.
Investment expenses.
These include interest paid or incurred to acquire investment property and expenses to manage or collect income from
investment property.
Comments and suggestions.
We welcome your comments about this publication and your suggestions for future editions.
You can e-mail us while visiting our web site at www.irs.gov.
You can write to us at the following address:
Internal Revenue Service
Tax Forms and Publications
W:CAR:MP:FP
1111 Constitution Ave. NW
Washington, DC 20224
We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number,
including the area code, in
your correspondence.
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