Doug and Sue Click file a joint tax return and decide to itemize their deductions. The Click's income for the year consists of $90,000 in salary, $2,000 interest income, $800 long-term capital loss. The Click's expenses for the year consist of $1,500 investmentinterest expense. Assuming that the Click's marginal tax rate is 35%, what is the amount of their investment interest expense deduction for the year?
A) $2,300
B) $1,500
C) $1,200
D) $2,000
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

The investment interest expense deduction is limited to the amount of net investment income. The Click's net investment income is $2,000 (interest income) - $800 (capital loss) = $1,200. However, since the capital loss is not considered investment income, the deduction is limited to $1,500, which is the amount of the investment interest expense.

Doug and Sue Click File a Joint Tax Return and Decide