1040-US: Disqualifying income for purposes of the Earned Income Credit (EIC)

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Question

What constitutes disqualifying income for purposes of the eligibility provisions for the earned income tax credit?

Answer

In general, disqualifying income is investment income such as taxable and tax-exempt interest, dividends, your child's interest and dividend income reported on your return, your child's tax-exempt interest reported on Form 8814, line 1b, net rental and royalty income, net capital gain income, other portfolio income, and net passive income. Gain that is treated as long-term capital gain under section 1231 (a)(1) of IRC is not disqualifying investment income. Section 1245, 1250, 1252, 1254 and 1255 gain is considered ordinary gain and therefore is not included in the calculation of income for purposes of the EIC. The disqualifying investment income limit for 2017 is $3,400. UltraTax CS automatically calculates this amount based on information entered elsewhere in the return and prints a supporting worksheet. You can force this amount in the Disqualifying investment income (Force) field in Screen EIC.

Related topic: Earned income credit (EIC) and preparer's EIC checklist FAQs (1040)

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