Question

Mickey and Jenny Porter file a joint tax return, and they itemize deductions. The porters incur $2,000 in investment expenses. They also incur $3,000 of investment interest expense during the year. The Porters' income for the year consists of $150,000 in salary and $2,5000 of interest income.

a. What is the amount of the Porters' investment interest expense deduction for the year?

b. What would their investment interest expense deduction be if they also had a ($2,000) long-term capital loss?

Answer 1

A. The Investment Interest expense can be set off against Net Investment income ( Interest income - Investment expenses i.e $25000-$2000=$23000) to the extent and the remaining is carried forward to the next year. so here the investment interest expense is wholly set off against the interest income i.e $3000 is deductible

B. If the Porter had $2000 long term capital loss there would be no effect on the deduction calculated above as the long term capital loss cannot be set off against investment interest expense.so the treatment will be same as above