Brandon and Jane Forte file a joint tax return and decide to itemize their deductions.The Forte's income for the year consists of $120,000 in salary,$1,000 interest income,$1,500 nonqualifying dividends,and $1,000 long-term capital gains.The Forte's expenses for the year consist of $3,000 investment interest expense and $900 tax preparation fees.Assuming that the Forte's marginal tax rate is 30% and they make no special elections,what is the amount of investment interest expense deduction for the year?

Question

Quizplus · Accepted Answer

The Forte's adjusted gross income (AGI) is $124,500 ($120,000 + $1,000 + $1,500 + $1,000). Two percent of their AGI is $2,490 ($124,500 x 0.02). Since their investment interest expense is $3,000, they can deduct up to $2,490 of it. Therefore, the investment interest expense deduction for the year is $2,490, but they cannot deduct the excess of $510 ($3,000 - $2,490).

Brandon and Jane Forte File a Joint Tax Return and Decide