Faith Forrester has the following selected information concerning her interest expenses and investment income for this year:
Interest income from corporate bonds = $5,000
Dividend income not eligible for the lower maximum tax rates on qualifying dividends = $10,000
Interest paid to acquire common stock portfolio = $18,000
Interest income from public-purpose municipal bonds = $4,000
Interest paid to acquire the municipal bonds = $2,000
Qualified residence interest paid on principal residence = $10,000
Based on the above information, the total amount of all of
Faith’s interest deductions for this year is:
$25,000
-Faith can deduct investment interest up to the limit of her net investment income. However, municipal bond interest income or the interest paid to acquire municipal bonds does not qualify as investment income or interest. Thus, the only investment interest that qualifies is the $18,000 paid to acquire the common stocks. Since Faith has only $15,000 of net investment income, she is limited to a $15,000 investment interest deduction. The $10,000 mortgage interest on the home is fully deductible. Faith has total interest deductions this year of $25,000.