Question

g Brandon and Jane Forte file a joint tax return and decide to itemize their deductions. The Fortes' income for the year consists of $119,000 in salary, $500 interest income, $1,000 nonqualifying dividends, and $500 long-term capital gains. The Fortes' expenses for the year consist of $2,500 in investment interest expense and $800 in tax preparation fees. Assuming that the Fortes' marginal tax rate is 32 percent and they make no special elections, what is the amount of investment interest expense deduction for the year

Answer 1

$1,500

Step-by-step explanation:

Investment interest expenses = Interest Income + Non qualifying dividends

Investment interest expenses = $500 + $1,000

Investment interest expenses = $1,500

$1,500 < $2,500 (Investment interest expenses)

The long term capital gains are not considered in investment income because this income is taxed at a preferential rate. Hence, the Investment interest expenses deduction for the year is $1,500.