Brandon and Jane Forte file a joint tax return and decide to itemize their deductions. The Fortes' income for the year consists of $119,500 in salary, $750 interest income, $1,250 nonqualifying dividends, and $750 long-term capital gains. The Fortes' expenses for the year consist of $2,750 in investment interest expense and $850 in tax preparation fees. Assuming that the Fortes' marginal tax rate is 32 percent and they make no special elections, what is the amount of investment interest expense deduction for the year?

Question

Quizplus · Accepted Answer

To determine the amount of investment interest expense deduction, we need to calculate the investment income first.

Investment income = interest income + nonqualifying dividends + long-term capital gains
Investment income = $750 + $1,250 + $750
Investment income = $2,750

As the Fortes' marginal tax rate is 32 percent, the maximum investment interest expense deduction would be limited to their investment income of $2,750.

Therefore, the investment interest expense deduction for the year would be $2,000 ($2,750 - $750 tax preparation fees).

Brandon and Jane Forte File a Joint Tax Return and Decide