Ms. Kerry, who itemized deductions on Schedule A, paid $15,000 interest on funds borrowed to acquire taxable bonds. She also paid $660 of management fees that were fully deductible on Schedule A. Her AGI is $100,000, which includes $19,700 of interest income. How much of the interest expense can she deduct?

Question

Quizplus · Accepted Answer

Ms. Kerry can deduct the amount of interest paid on funds borrowed to acquire taxable bonds, up to the amount of her net investment income. Her net investment income is $19,700 (interest income) - $660 (management fees) = $19,040. Therefore, she can deduct up to $19,040 of the interest expense. Since she paid $15,000 in interest on funds borrowed to acquire taxable bonds, she can deduct $19,040 - $15,000 = $4,040 of the interest expense. Therefore, the answer is B) $19,039 (rounded to the nearest dollar).

Ms Kerry, Who Itemized Deductions on Schedule A, Paid $15,000