Final answer:
The true statement is D. Rental and royalty expenses are deducted for AGI. Business expenses are deductible, but not all are for AGI, while investment expenses and tax preparation fees were generally moved away from being deductible for AGI due to recent tax laws.
Step-by-step explanation:
The correct answer to the question regarding deductibility of expenses for Adjusted Gross Income (AGI) is D. Rental and royalty expenses are deducted for AGI. When it comes to tax reporting and the calculation of AGI, not all expenses can be deducted in the same manner. Each type of expense has specific rules. Here's an explanation for the options provided:
Business expenses are generally considered 'above the line' and can be deducted for AGI if they are related to a business operated by the taxpayer. However, the statement 'All business expenses are deducted for AGI' is too broad as some business expenses may not be deductible or may be 'below the line' deductions.
Investment expenses were previously deductible to some extent as miscellaneous itemized deductions, but with changes in the tax law such as the Tax Cuts and Jobs Act, they are generally no longer deductible for AGI.
Tax preparation fees were similarly categorized as miscellaneous itemized deductions and, under recent tax law changes, are also generally not deductible for AGI.
Rental and royalty expenses, which are typically associated with property rentals or intellectual property royalties, can often be deducted for AGI. These expenses are usually deducted in the computation of income from rental or royalty sources.