Question

Tobias has a brokerage account and buys on the margin, which resulted in an interest expense of $30,400 during the year. Income generated through the brokerage account was as follows:

Municipal interest	$60,800
Taxable dividends and interest	304,000

If required, round any division to two decimal places and use in subsequent computations. Round your final answer to the nearest dollar.

How much investment interest can Tobias deduct?

Answer 1

Investment interest deduction by Tobias = $ 25,332 (rounded )

Explanation :

Calculate the investment interest can be deduct by Tobias :

Investment interest deduction by Tobias = Interest expenses * Proportion of interest expense deduction

Investment interest deduction by Tobias = $ 30,400 * 83.33 %(Note 1 )

Investment interest deduction by Tobias = $ 25,332 (Rounded )

Note 1 :

Calculate the proportion of interest expense deduction :

Proportion of interest expense deduction = (Taxable income / Total Income )*100

Proportion of interest expense deduction = ($304,000 / ($304,000+$ 60,800) )*100

Proportion of interest expense deduction = ($304,000 / $ 364,800 )*100

Proportion of interest expense deduction = 83.33 %