Taxpayers may make an election to include preferentially-taxed capital gains and qualified dividends in investment income and deduct more investment interest expense currently if they are willing to subject this income to ordinary tax rates.

Question

Quizplus · Accepted Answer

Taxpayers can make an election on their tax return to treat some types of income (such as capital gains and qualified dividends) as investment income, which allows them to deduct more investment interest expense. However, by doing so, they will be subjecting that income to ordinary tax rates instead of the lower tax rates that apply to long-term capital gains and qualified dividends.

Taxpayers May Make an Election to Include Preferentially-Taxed Capital Gains