In 2015 Mario earned $9,000 in net investment income and incurred $14,000 of investment interest expense.Mario paid off the loan in early 2016 so he only paid $2,000 of investment interest expense in 2016.He earned $10,000 of net investment income in 2016.How much investment interest expense can Mario deduct in 2016?
A)$2,000
B)$10,000
C)$7,000
D)$0

Question

Quizplus · Accepted Answer

The investment interest expense deduction is limited to net investment income. In 2015, Mario had $9,000 of net investment income, but $14,000 of investment interest expense. Therefore, $5,000 of the interest expense was not deductible in 2015. Since Mario paid off the loan in 2016, he only had $2,000 of investment interest expense, and he had $10,000 of net investment income. Therefore, he can deduct up to $7,000 ($10,000 - $3,000) of investment interest expense in 2016.

In 2015 Mario Earned $9,000 in Net Investment Income and Incurred