Doug and Sue Click file a joint tax return and decide to itemize their deductions. The Clicks' income for the year consists of $90,600 in salary, $2,300 interest income,and $860 long-term capital loss. The Clicks' expenses for the year consist of $1,200 investment interest expense. Assuming that the Clicks' marginal tax rate is 35 percent, what is the amount of their investment interest expense deduction for the year?
A)$1,440.
B)$1,200.
C)$2,300.
D)$2,060.
E)None of the choices are correct.

Question

Quizplus · Accepted Answer

According to IRS rules, investment interest expense deduction is limited to net investment income. The Clicks had $2,300 in interest income and -$860 in long-term capital loss for a net investment income of $1,440. Since their investment interest expense of $1,200 is less than their net investment income, they can deduct the full $1,200 as an itemized deduction.

Doug and Sue Click File a Joint Tax Return and Decide