Phuong has the following sources of investment income: $$\begin{array} { | l | r | }
\hline \text { Money market account interest } & \$ 2,000 \
\hline \text { Interest on State of New York bond } & 1,000 \
\hline \text { Dividends from domestic stocks } & 3,000 \
\hline \text { Long-term capital gain } & 4,000 \
\hline \text { Short-term capital gain } & 5,000 \
\hline
\end{array}$$ Barring any special elections,how much of the investment income will be included in calculating net investment income for purposes of the investment interest expense limitation?
A)$2,000
B)$7,000
C)$5,000
D)$15,000

Question

Phuong has the following sources of investment income: $$\begin{array} { | l | r | } 
\hline \text { Money market account interest } & \$ 2,000 \
\hline \text { Interest on State of New York bond } & 1,000 \
\hline \text { Dividends from domestic stocks } & 3,000 \
\hline \text { Long-term capital gain } & 4,000 \
\hline \text { Short-term capital gain } & 5,000 \
\hline
\end{array}$$ Barring any special elections,how much of the investment income will be included in calculating net investment income for purposes of the investment interest expense limitation?
A)$2,000
B)$7,000
C)$5,000
D)$15,000

Quizplus · Accepted Answer

The investment interest expense limitation only applies to investment income from interest, dividends, and short-term capital gains. Therefore, the only amounts that will be included in calculating net investment income are the money market account interest, interest on the State of New York bond, dividends from domestic stocks, and short-term capital gain. This totals $2,000 + $1,000 + $3,000 + $5,000 = $11,000. However, the investment interest expense limitation only applies to the first $10,000 of net investment income. Therefore, the amount of investment income that will be included in calculating net investment income for purposes of the investment interest expense limitation is $10,000.

Phuong Has the Following Sources of Investment Income Barring Any Special Elections,how Much of the Investment Income Will