Question

In the current year, Jakim earns $10,000 in net investment income and incurs $15,000 of investment...

In the current year, Jakim earns $10,000 in net investment income and incurs $15,000 of investment interest expense. What is the maximum amount of investment interest expense he is allowed to deduct this year?

A) $0

B) $5,000 deductible this year; $10,000 carried forward to next year

C) $10,000 deductible this year; $5,000 carried forward to next year

D) $15,000 deductible this year; nothing to be carried forward to next year

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Answer #1

Since the maximum amount of investment interest expense that can be deducted in a year is limited to the amount of investment income in the particular year with the balance being carried forward to the next year, so Jakim can carry forward the maximum of $ 10,000 of investment interest expense which is equal to his investment interest income and the balance $5000 is carried forward to next year.

Thus correct answer is C) $10,000 deductible this year; $5,000 carried forward to next year

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