Tony is married and files a joint tax return.He has investment interest expense of $190,000 on a loan made to him to purchase a parcel of unimproved land.His income from investments (interest and annuities)totaled $36,000.After reducing his miscellaneous deductions by the applicable 2% floor,the deductible portion amounted to $5,600.In addition to $2,800 of investment expenses included in miscellaneous deductions,Tony paid $7,200 of real estate taxes on the unimproved land.Tony also has a $9,000 net capital gain from the sale of another parcel of unimproved land.Calculate Tony's maximum investment interest deduction for the year.

Question

Quizplus · Accepted Answer

First, we need to calculate Tony's adjusted net investment income (ANII), which is calculated as follows:

Investment income (interest and annuities) = $36,000
Net capital gain = $9,000
Total investment income = $45,000

Investment interest expense = $190,000

Deductible miscellaneous deductions (after 2% floor) = $5,600
Investment expenses included in miscellaneous deductions = $2,800
Real estate taxes = $7,200

Total deductions related to investments = $15,600

ANII = Total investment income ( $45,000) - Total deductions related to investments ($15,600) = $29,400

Next, we need to calculate Tony's maximum investment interest deduction based on his ANII. The calculation is as follows:

ANII ($29,400) x 30% = $8,820

Since Tony's investment interest expense is higher than his maximum investment interest deduction, he can only deduct up to the ANII amount.

Therefore, the maximum investment interest deduction for Tony is $29,400 or choice C.

Tony Is Married and Files a Joint Tax Return