Step 1. Figuring the Child's Net Investment Income (Form 8615, Part I)

The first step in figuring a child's tax using Form 8615 is to figure the child's net investment income. To do that, use Part I of Form 8615. For an example, see the Illustrated Part I of Form 8615 on the next page.

Line 1 (Investment Income)

If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. Adjusted gross income is shown on line 36 of Form 1040; line 22 of Form 1040A; or line 35 of Form 1040NR. Form 1040EZ and Form 1040NR-EZ cannot be used if Form 8615 must be filed.

If the child had earned income, figure the amount to enter on line 1 of Form 8615 by using the worksheet in the instructions for the form.

However, use the following worksheet if the child has excluded any foreign earned income or deducted a loss from self-employment or a net operating loss from another year.

Alternate Worksheet
for Line 1 of Form 8615
A.	Enter the amount from the child's Form 1040, line 22, or Form 1040NR, line 23
B.	Enter the total of any net loss from self-employment, any net operating loss deduction, any foreign earned income exclusion, and any foreign housing exclusion from the child's Form 1040 or Form 1040NR. Enter this total as a positive number (greater than zero)
C.	Add line A and line B and enter the total.
D.	Enter the child's earned income plus any amount from line 32 of the child's Form 1040 or line 31 of the child's Form 1040NR.
	Generally, the child's earned income is the total of the amounts reported on Form 1040, lines 7, 12, and 18 (if line 12 or 18 is a loss, use zero) or Form 1040NR, lines 8, 13, and 19 (if line 13 or 19 is a loss, use zero)
E.	Subtract line D from line C. Enter the result here and on Form 8615, line 1

Illustrated Part I of Form 8615

Investment income defined.   Investment income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. It includes taxable interest, dividends, capital gains (including capital gain distributions), the taxable part of social security and pension payments, and certain distributions from trusts. Investment income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages).

Nontaxable income.   For this purpose, investment income includes only amounts the child must include in total income. Nontaxable investment income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included.

Capital loss.   A child's capital losses are taken into account in figuring the child's investment income. Capital losses are first applied against capital gains. If the capital losses are more than the capital gains, the difference (up to $3,000) is subtracted from the child's interest, dividends, and other investment income. Any difference over $3,000 is carried to the next year.

Income from property received as a gift.   A child's investment income includes all income produced by property belonging to the child. This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it.

A child's investment income includes income produced by property given as a gift to the child. This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act.

Example.   Amanda Black, age 13, received the following income.

• Dividends - $600
• Wages - $2,100
• Taxable interest - $1,200
• Tax-exempt interest - $100
• Capital gains - $300
• Capital losses - ($200)

The dividends were on stock given to her by her grandparents.

Amanda's investment income is $1,900. This is the total of the dividends ($600), taxable interest ($1,200), and capital gains reduced by capital losses ($300 - $200 = $100). Her wages are earned (not investment) income because they are received for work actually done. Her tax-exempt interest is not included because it is nontaxable.

Trust income.   If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other investment income from the trust are investment income to the child.

Adjustment to income.   In figuring the amount to enter on line 1, the child's investment income is reduced by any penalty on the early withdrawal of savings.

Line 2 (Deductions)

If the child does not itemize deductions on Schedule A (Form 1040 or Form 1040NR), enter $1,500 on line 2.

If the child does itemize deductions, enter on line 2 the larger of:

1. $750 plus the child's itemized deductions that are directly connected with the production of the investment income entered on line 1, or
2. $1,500.

Directly connected.   Itemized deductions are directly connected with the production of investment income if they are for expenses paid 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.

These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). Only the amount greater than 2% of the child's adjusted gross income can be deducted. See Publication 529, Miscellaneous Deductions, for more information.

Example 1.   Roger, age 12, has investment income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2%-of-adjusted-gross-income limit) that are directly connected with his investment income. His adjusted gross income is $8,000, which is entered on line 36 of Form 1040 and on line 1 of Form 8615. Line 2 is $1,500 because that is more than the sum of $750 and his directly-connected itemized deductions of $300.

Example 2.   Eleanor, age 8, has investment income of $16,000 and an early withdrawal penalty of $100. She has no other income. She has itemized deductions of $1,050 (net of the 2%-of-adjusted-gross-income limit) that are directly connected with the production of her investment income. Her adjusted gross income, entered on line 1, is $15,900 ($16,000 - $100). The amount on Line 2 is $1,800. This is the larger of:

1. $750 plus the $1,050 of directly connected itemized deductions, or
2. $1,500.

Line 3

Subtract line 2 from line 1 and enter the result on this line. If zero or less, do not complete the rest of the form. However, you must still attach Form 8615 to the child's tax return. Figure the tax on the child's taxable income in the normal manner.

Line 4 (Child's Taxable Income)

Enter on line 4 the child's taxable income from Form 1040, line 41; Form 1040A, line 27; or Form 1040NR, line 39.

Line 5 (Net Investment Income)

A child's net investment income cannot be more than his or her taxable income. Enter on line 5 the smaller of line 3 or line 4 of Form 8615. This is the child's net investment income.

If zero or less, do not complete the rest of the form. However, you must still attach Form 8615 to the child's tax return. Figure the tax on the child's taxable income in the normal manner.

Illustrated Part II of Form 8615

Step 2. Figuring a Tentative Tax at the Parent's Tax Rate (Form 8615, Part II)

The next step in completing Form 8615 is to figure a tentative tax on the child's net investment income at the parent's tax rate. The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net investment income (plus the net investment income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it.

When figuring the tentative tax at the parent's tax rate, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net investment income. For example, do not refigure the medical expense deduction.

Figure the tentative tax on lines 6 through 13. For an example, see Illustrated Part II of Form 8615 on the next page.

Line 6 (Parent's Taxable Income)

Enter on line 6 the amount from the parent's Form 1040, line 41; Form 1040A, line 27; Form 1040EZ, line 6; TeleFile Tax Record, line K; Form 1040NR, line 39; or Form 1040NR-EZ, line 14. If the parent's taxable income is zero or less, enter zero on line 6.

Line 7 (Net Investment Income of Other Children)

If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. Do not include the amount from line 5 of the Form 8615 being completed.

Example.   Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. The children's net investment income amounts on line 5 of their Forms 8615 are:

• Sharon - $800
• Jerry - $600
• Mike - $1,000

Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600).

Other children's information not available.   If the net investment income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. Estimates and extensions are discussed earlier under Providing Parental Information (Form 8615, Lines A-C).

Line 8 (Parent's Taxable Income Plus Children's Net Investment Income)

Enter on this line the total of lines 5, 6, and 7. You must determine the amount of net capital gain included on this line before completing line 9 of Form 8615.

Net capital gain is the smaller of the gain, if any, on line 16 of Schedule D or the gain, if any, on line 17 of Schedule D. If Schedule D is not required, it is the amount on line 13 of Form 1040 or line 10 of Form 1040A.

Net capital gain on line 8.   If neither the child nor the parent nor any other child has net capital gain, the net capital gain on line 8 is zero.

If the child, parent, or any other child has net capital gain, figure the amount of net capital gain included on line 8 by adding together the net capital gain amounts included on lines 5, 6, and 7 of Form 8615. Use the following discussions to find these amounts.

Net capital gain on line 5.   If the child has a net capital gain, use the appropriate worksheet below to find the amount of net capital gain included on line 5. These worksheets are needed to adjust the child's net capital gain by the appropriate allocated amount of the child's deductions.

Use the following worksheet only if line 2 of the child's Form 8615 is $1,500 and lines 3 and 5 are the same amount.

Line 5 Worksheet #1
A.	Enter the child's net capital gain
B.	Enter the amount from line 1 of the child's Form 8615
C.	Divide line A by line B (but do not enter more than 1)
D.	Multiply $1,500 by line C
E.	Net capital gain on line 5. Subtract line D from line A (but do not enter less than zero or more than the amount on line 5 of Form 8615)

Use the following worksheet only if line 2 of the child's Form 8615 is more than $1,500 and lines 3 and 5 are the same amount.

Line 5 Worksheet #2
A.	Enter the child's net capital gain
B.	Enter the child's itemized deductions directly connected with the production of the child's net capital gain
C.	Subtract line B from line A
D.	Enter the amount from line 1 of the child's Form 8615
E.	Divide line A by line D (but do not enter more than 1)
F.	Multiply $750 by line E
G.	Net capital gain on line 5. Subtract line F from line C (but do not enter less than zero or more than the amount on line 5 of Form 8615)

Use the following worksheet only if line 5 of the child's Form 8615 is less than line 3.

Line 5 Worksheet #3
A.	Enter the child's net capital gain
B.	If the child itemized deductions, enter the child's itemized deductions directly connected with the production of the child's net capital gain
C.	Subtract line B from line A
D.	If the child can claim his or her own exemption, enter $3,000*. Otherwise, enter zero
E.	If the child itemized deductions, enter the child's itemized deductions not directly connected with the production of the child's net capital gain. Otherwise, enter the child's standard deduction
F.	Add lines D and E
G.	Enter the child's adjusted gross income (line 36 of Form 1040, line 22 of Form 1040A, or line 35 of Form 1040NR)
H.	Divide line A by line G (but do not enter more than 1)
I.	Multiply line F by line H
J.	Net capital gain on line 5. Subtract line I from line C. Enter the result here (but do not enter less than zero or more than the amount on line 5 of Form 8615)
* If you enter more than $137,300 on line G, see Deduction for Exemptions Worksheet - Line 40 in the Form 1040 instructions for the amount to enter on line D.

Net capital gain on line 6.   If the parent has a net capital gain, its full amount is the net capital gain included on line 6.

Net capital gain on line 7.   The net capital gain included on line 7 is the total of the amounts of net capital gain included on line 5 of the other children's Forms 8615. Find the amount for each other child as explained earlier under Net capital gain on line 5. (Do not attach the other children's Forms 8615 to the child's return.)

Line 9 (Tax on Parent's Taxable Income Plus Children's Net Investment Income)

Figure the tax on the amount on line 8 using the Tax Table, the Tax Rate Schedules, the Capital Gain Tax Worksheet (in the Form 1040, 1040A, or 1040NR instructions), the Schedule D Tax Worksheet (in the Schedule D instructions) or Schedule D or J (Form 1040), as follows.

• If line 8 does not include any net capital gain, use the Tax Table or Tax Rate Schedules to figure this tax. But if Schedule J, Farm Income Averaging, is used to figure the tax on the parent's return, use it to figure this tax.
• If line 8 does include any net capital gain, use the Capital Gain Tax Worksheet to figure this tax unless the child, parent, or any other child has unrecaptured section 1250 gain, 28% rate gain, qualified 5-year gain, or an amount on Form 4952, line 4e. In that case, use Schedule D to figure this tax, or if there is unrecaptured section 1250 gain or 28% rate gain, use the Schedule D Tax Worksheet. But if Schedule J is used to figure the tax on the parent's return, use it to figure this tax.

Using the Capital Gain Tax Worksheet for line 9 tax.   If you use the Capital Gain Tax Worksheet to figure the line 9 tax on Form 8615, complete that worksheet as follows.

1. On line 1, enter the amount from line 8 of Form 8615.
2. On line 2, enter the amount of the net capital gain on line 8 of Form 8615. (See the earlier discussion for line 8.)
3. Complete lines 3 through 15 following the worksheet instructions. (Use the parent's filing status to complete lines 4, 5, and 14.)

Enter the amount from line 15 of the Capital Gain Tax Worksheet on line 9 of Form 8615 and check the box on that line. Do not attach this worksheet to the child's return.

Using Schedule D for line 9 tax.   Use Schedule D to figure the line 9 tax on Form 8615 if the child, parent, or any other child has qualified 5-year gain or an amount on Form 4952, line 4e, and none of them has unrecaptured section 1250 gain or 28% rate gain.

If you must use Schedule D, first complete any Schedule D required for the child, parent, or any other child. Then figure the tax using Part IV of another Schedule D as a worksheet. (Do not attach this worksheet Schedule D to the child's return.)

Complete this worksheet Schedule D as follows.

1. On line 19, enter zero.
2. On line 20, enter the amount from line 8 of Form 8615.
3. On line 21, enter the net capital gain included on line 8 of Form 8615. (See the earlier discussion for line 8.)
4. On line 22, enter the total of the amounts on line 22 of each completed Schedule D.
5. Complete lines 23 through 40, following the Schedule D instructions. (Use the parent's filing status to complete lines 25, 26, and 39.) If you need to complete line 29, enter zero if neither the child, nor the parent, nor any other child has qualified 5-year gain. Otherwise, enter the amount of qualified 5-year gain included in the net capital gain on line 21 of this worksheet Schedule D. Figure this amount as explained next under Figuring qualified 5-year gain (line 29).

Enter the amount from line 40 of this worksheet Schedule D on line 9 of Form 8615 and check the box on that line.

Figuring qualified 5-year gain (line 29).   If the child, parent, or any other child has qualified 5-year gain, figure the amount of qualified 5-year gain included in the net capital gain on line 21 of the worksheet Schedule D using the following worksheet.

Worksheet for Line 29 of Schedule D (Line 9 Tax)
1.	Enter the amount, if any, from line 8 of the child's Qualified 5-Year Gain Worksheet in the Schedule D instructions
	If line 1 is zero or blank, skip lines 2 through 4, enter zero on line 5, and go to line 6.
2.	Enter the amount from the last line of the child's completed Line 5 Worksheet. (See the earlier discussion for line 8 of Form 8615.)
3.	Enter the amount from line A of the child's completed Line 5 Worksheet
4.	Divide line 2 by line 3. Enter the result as a decimal
5.	Multiply line 1 by line 4
6.	If no other child has qualified 5-year gain, enter zero. Otherwise, repeat lines 1 through 5 above for each other child who has qualified 5-year gain and enter the total of the line 5 amounts for those other children
7.	Enter the amount, if any, from line 8 of the parent's Qualified 5-Year Gain Worksheet in the Schedule D instructions
8.	Add lines 5, 6, and 7. Also enter this amount on line 29 of the worksheet Schedule D

Using the Schedule D Tax Worksheet for line 9 tax.   Use the Schedule D Tax Worksheet in the Schedule D instructions to figure the line 9 tax on Form 8615 if the child, parent, or any other child has unrecaptured section 1250 gain or 28% rate gain. If you must use the Schedule D Tax Worksheet, first complete any Schedule D and any actual Schedule D Tax Worksheet required for the child, parent, or any other child. Then figure the line 9 tax using another Schedule D Tax Worksheet. (Do not attach this Schedule D Tax Worksheet to the child's return.)

Complete this Schedule D Tax Worksheet as follows.

1. On line 1, enter the amount from line 8 of Form 8615.
2. On line 2, enter the net capital gain included on line 8 of Form 8615. (See the earlier discussion for line 8.)
3. On line 3, enter the total of the amounts, if any, on line 22 of each actual Schedule D.
4. On line 4, follow the worksheet instructions.
5. Leave line 5 blank.
6. On line 6, enter zero if neither the child, parent, nor any other child has 28% rate gain (line 15 of Schedule D). Otherwise, enter the amount of 28% rate gain included in the net capital gain on line 2. Figure this amount as explained later under Figuring 28% rate gain (line 6).
7. On line 7, enter zero if neither the child, parent, nor any other child has unrecaptured section 1250 gain (line 19 of Schedule D). Otherwise, enter the amount of unrecaptured section 1250 gain included in the net capital gain on line 2. Figure this amount as explained later under Figuring unrecaptured section 1250 gain (line 7).
8. Complete lines 8 through 37, following the worksheet instructions. (Use the parent's filing status to complete lines 11, 15, and 36.) If you need to complete line 17, enter zero if neither the child, parent, nor any other child has qualified 5-year gain (line 8 of the Qualified 5-Year Gain Worksheet in the Schedule D instructions). Otherwise, enter the amount of qualified 5-year gain included in the net capital gain on line 2. Figure this amount as explained later under Figuring qualified 5-year gain (line 17).

Enter the amount from line 37 of this Schedule D Tax Worksheet on line 9 of Form 8615 and check the box on that line.

Figuring 28% rate gain (line 6).   If the child, parent, or any other child has 28% rate gain, figure the amount of 28% rate gain included in the net capital gain on line 2 using the following worksheet.

Worksheet for Line 6 of the Schedule D Tax Worksheet (Line 9 Tax)
1.	If the child does not have 28% rate gain, skip this line and lines 2 through 5, enter zero on line 6, and go to line 7. Otherwise, if an actual Schedule D Tax Worksheet was required for the child, skip this line, enter the amount from line 6 of that worksheet on line 2 below, and go to line 3. If that worksheet was not required, combine lines 7 and 15 of the child's Schedule D. Enter the result. If zero or less, enter zero
2.	Enter the smaller of line 1 above or line 15 of the child's Schedule D, but not less than zero
	If line 2 is zero, skip lines 3 through 5, enter zero on line 6, and go to line 7.
3.	Enter the amount from the last line of the child's completed Line 5 Worksheet. (See the earlier discussion for line 8 of Form 8615.)
4.	Enter the amount from line A of the child's completed Line 5 Worksheet
5.	Divide line 3 by line 4. Enter the result as a decimal
6.	Multiply line 2 by line 5
7.	If no other child has 28% rate gain, enter zero. Otherwise, repeat lines 1 through 6 above for each other child who has 28% rate gain and enter the total of the line 6 amounts for those other children
8.	If the parent does not have 28% rate gain, skip this line, enter zero on line 9, and go to line 10. Otherwise, if an actual Schedule D Tax Worksheet was required for the parent, skip this line, enter the amount from line 6 of that worksheet on line 9 below, and go to line 10. If that worksheet was not required, combine lines 7 and 15 of the parent's Schedule D. Enter the result. If zero or less, enter zero
9.	Enter the smaller of line 8 above or line 15 of the parent's Schedule D, but not less than zero
10.	Add lines 6, 7, and 9. Also enter this amount on line 6 of the Schedule D Tax Worksheet

Figuring unrecaptured section 1250 gain (line 7).   If the child, parent, or any other child has unrecaptured section 1250 gain, figure the amount of unrecaptured section 1250 gain included in the net capital gain on line 2 using the following worksheet.

Worksheet for Line 7 of the Schedule D Tax Worksheet (Line 9 Tax)
1.	Enter the amount, if any, from line 19 of the child's Schedule D
	If line 1 is zero or blank, skip lines 2 through 4, enter zero on line 5, and go to line 6.
2.	Enter the amount, if any, from the last line of the child's completed Line 5 Worksheet. (See the earlier discussion for line 8 of Form 8615.)
3.	Enter the amount from line A of the child's completed Line 5 Worksheet
4.	Divide line 2 by line 3. Enter the result as a decimal
5.	Multiply line 1 by line 4
6.	If no other child has unrecaptured section 1250 gain, enter zero. Otherwise, repeat lines 1 through 5 for each other child who has unrecaptured section 1250 gain and enter the total of the line 5 amounts for those children
7.	If the parent does not have unrecaptured section 1250 gain, enter zero. Otherwise, enter the amount from line 19 of the parent's Schedule D
8.	Add lines 5, 6, and 7. Also enter this amount on line 7 of the Schedule D Tax Worksheet

Figuring qualified 5-year gain (line 17).   If the child, parent, or any other child has qualified 5-year gain, figure the amount of qualified 5-year gain included in the net capital gain on line 2 using the following worksheet.

Worksheet for Line 17 of the Schedule D Tax Worksheet (Line 9 Tax)
1.	Enter the amount, if any, from line 8 of the child's Qualified 5-Year Gain Worksheet in the Schedule D instructions
	If line 1 is zero or blank, skip lines 2 through 4, enter zero on line 5, and go to line 6.
2.	Enter the amount from the last line of the child's completed Line 5 Worksheet. (See the earlier discussion for line 8 of Form 8615.)
3.	Enter the amount from line A of the child's completed Line 5 Worksheet
4.	Divide line 2 by line 3. Enter the result as a decimal
5.	Multiply line 1 by line 4
6.	If no other child has qualified 5-year gain, enter zero. Otherwise, repeat lines 1 through 5 above for each child who has qualified 5-year gain and enter the total of the line 5 amounts for those other children
7.	If the parent has no qualified 5-year gain, enter zero. Otherwise, enter the amount from line 8 of the parent's Qualified 5-Year Gain Worksheet in the Schedule D instructions
8.	Add lines 5, 6 and 7. Also enter this amount on line 17 of the Schedule D Tax Worksheet

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