Question

In 2016, Julio earned $10,000 in net investment income and incurred $15,000 of investment interest expense....

In 2016, Julio earned $10,000 in net investment income and incurred $15,000 of investment interest expense. Julio paid off the loan in early 2017, so he only paid $3,000 of investment interest expense in 2017. He earned $12,000 of net investment income in 2017. How much investment interest expense can Julio deduct in 2017?

A) $3,000

B) $8,000

C) $5,000

D) $0

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Answer #1

In 2016, investment interest expense was $ 15000 and investment interest income was $ 10000

So in 2016 investment interest expense of $ 10000 can only be deducted and rest $5000 will be carried forward to next year.

In 2017,  investment interest expense was $ 3000 and investment interest income was $ 12000

Eligible investment interest expense for tax deduction = 3000+5000 = $ 8000

Since it is less than investment interest income, then investment interest expense of $ 8000 can be deducted

Answer B

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