Walter pays interest expense of $2,100 to acquire his investment portfolio during the current year. Walter receives $5,000 in interest from investments in General Motors and Xerox bonds, and $2,500 in interest from investments in City of San Francisco bonds. How much may Walter deduct for the current year?

Question

Quizplus · Accepted Answer

Walter can deduct the interest expense of $2,100 against the $5,000 interest income from General Motors and Xerox bonds, as it is investment interest expense. However, the $2,500 interest from the City of San Francisco bonds is tax-exempt, so it cannot be used to offset the investment interest expense. Therefore, Walter can deduct $2,100 from the $5,000, leaving him with a deduction of $1,400.

Walter Pays Interest Expense of $2,100 to Acquire His Investment