Question

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?

Answer 1

The interest income for the year is $1000. The investment interest expense is $ 3000. As per the provision the investment income expenses deduction is allowed to the extent of investment income. The amount which could not be deducted can be carried forward for next year. So the investment interest expenses allowed as deduction is limited to $1000 for Forte for the year. Since the dividend income is non qualifying income no expense is allowed on such income.