Question

Phoebe's AGI for the current year is $140,000. Included in this AGI is $100,000 salary, $20,000 of interest income earned on bank accounts, $12.000 of dividend income, a short-term capital gain of $2,000 and a long-term capital gain of $6,000. In earning the investment income, Phoebe paid investment interest expense of $30,000. What is Phoebe's investment interest expense deduction for the year, assuming no special elections are made?

Answer 1

Phoebe's Maximum Deduction is $42,000, Therefore Phoebe can claim full amount deduction

Step-by-step explanation:

In order to calculate Phoebe's investment interest expense deduction for the year, assuming no special elections are made we would have to calculate first the total interest income as follows:

Total interest income = interest on bank accounts + dividend income

Total interest income = $20,000 + $12,000

Total interest income = $ 32,000

According to the given data Total interest expense = $ 30,000

The, Long term capital gains are not included in interest income.

Therefore, Maximum Deduction = 30% * AGI

Maximum Deduction = 30% * 140,000

Maximum Deduction = $ 42,000

Phoebe's Maximum Deduction is $42,000, Therefore Phoebe can claim full amount deduction