In 2018,Mario earned $9,000 in net investment income and incurred $14,000 of investment interest expense.Mario paid off the loan in early 2019,so he only paid $2,000 of investment interest expense in 2019.He earned $10,000 of net investment income in 2019.How much investment interest expense can Mario deduct in 2019?
A)$2,000
B)$10,000
C)$7,000
D)$0

Question

Quizplus · Accepted Answer

In 2018, Mario had a net investment loss of $5,000 ($9,000 - $14,000), so he could only deduct up to $3,000 of investment interest expense in that year. The remaining $11,000 of disallowed investment interest expense can be carried forward to future years.

In 2019, Mario had a positive net investment income of $10,000. He can deduct the full amount of investment interest expense paid in 2019 ($2,000) against his net investment income. He can also deduct up to $3,000 of his carried forward investment interest expense from 2018, leaving him with $8,000 of disallowed investment interest expense to carry forward to future years.

Therefore, the amount of investment interest expense that Mario can deduct in 2019 is $2,000 (option C).

In 2018,Mario Earned $9,000 in Net Investment Income and Incurred