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%, what is the amount of investment interest expense deduction for the year?

Question

Quizplus · Accepted Answer

Investment interest expense deduction is limited to net investment income. In this case, the Forte's net investment income is $1,000 (interest income) + $1,500 (nonqualifying dividends) + $1,000 (long-term capital gains) = $3,500. The investment interest expense deduction is limited to the amount of net investment income, and any excess can be carried forward to future years. Therefore, the Forte's maximum investment interest expense deduction is $2,500 ($3,000 investment interest expense - $500 excess over net investment income).

Brandon and Jane Forte File a Joint Tax Return and Decide