Question

Ramon incurred $83,100 of interest expense related to his investments this year. His investment income included $34,500 of interest and a $37,500 net capital gain on the sale of securities. Ramon has asked you to compute the amount of his deduction for investment interest, taking into consideration any options he might have. What is the maximum amount of Ramon’s investment interest expense deduction in the current year?

Answer 1

$72,000

Step-by-step explanation:

To calculate investment interest expense dedcution, we need to know the total investment income & total investment interest expenses

Then there're 2 scenarios as followings:

• If the investment interest expenses are less than the net investment income, the entire investment interest expense is deductible.
• If the investment interest expenses are more than the net investment income, we can deduct the expenses up to the net investment income amount. The rest of the expenses are carried forward to next year.

In this example, Ramon's investment income is $72,000 ($34,500 of interest and a $37,500 net capital gain on the sale of securities); is lower than his interest expenses of $83,100.

So Ramon is entiled to deduct $72,000 all the entire investment interest expense in current year