Capital asset treatment for self-created musical works. Musical compositions and copyrights in musical works are generally not capital assets. However, you can elect to treat these types of property as capital assets. See Capital Assets and Noncapital Assets in chapter 4.

Tax shelters and other reportable transactions. Investors are no longer required to file Form 8271, Investor Reporting of Tax Shelter Registration Number, otherwise due after August 2, 2007. “Transactions with a brief asset holding period” is no longer a reportable transaction category for transactions entered into after August 2, 2007. “Transactions of interest” is a new reportable transaction category. For more information, see chapter 2.

Identified straddles. Recent legislation clarified the treatment of a loss on a position in an identified straddle when (1) there are no offsetting positions in the identified straddle with unrecognized straddle period gain and (2) an offsetting position in the identified straddle is or has been a liability to you. Also, for identified straddles acquired after December 29, 2007, you must identify the positions in the straddle that are offsetting with respect to one another. For more information, see Indentified straddle under Straddles in chapter 4.

Maximum tax rate on qualified dividends and net capital gain reduced. In tax years beginning after 2007, the 5% maximum tax rate on qualified dividends and net capital gain is reduced to 0 (zero)%. Thus, qualified dividends and net capital gain are not taxed if the regular tax rate that would apply to them is lower than 25%.

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). If you are a nonresident or resident alien and do not have and are not eligible to get a social security number (SSN), you must apply for an ITIN. For details on how to do so, see Form W-7, Application for IRS Individual Taxpayer Identification Number, and its instructions. If you already have an ITIN, enter it wherever an SSN is requested on your tax return. 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.

Sale of DC Zone assets. 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 may be able to exclude the qualified capital gain from your gross income. This exclusion applies to an interest in, or property of, certain businesses operating in the District of Columbia. For more information about the exclusion, see the Schedule D instructions. For more information about DC Zone assets, see Publication 954, Tax Incentives for Distressed Communities.

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.

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.