Doug and Sue Click file a joint tax return and decide to itemize their deductions. The Clicks' income for the year consists of $90,000 in salary, $2,000 interest income, and $800 long-term capital loss. The Clicks' expenses for the year consist of $1,500 investment interest expense. Assuming that the Clicks' marginal tax rate is 35 percent, what is the amount of their investment interest expense deduction for the year?
A)$1,200.
B)$1,500.
C)$2,000.
D)$2,300.
E)None of the choices are correct.

Question

Quizplus · Accepted Answer

To calculate the investment interest expense deduction, we need to compare the interest income ($2,000) with the investment interest expense ($1,500). Since the interest income is greater than the investment interest expense, the excess interest can be carried over to future tax years. Therefore, the maximum investment interest expense deduction for this year is simply the investment interest expense itself, which is $1,500.

Doug and Sue Click File a Joint Tax Return and Decide