Question 1

A taxpayer has $5,000 of investment interest expense in the current year. The taxpayer has $3,000 of interest income and $2,000 of qualified dividends. The taxpayer does NOT elect to treat the qualified dividends as investment income. What is the investment interest expense deduction?

Accepted Answer

Investment Interest Deduction is limited to Net Investment Income. NII includes Interest, Non-Qual Dividends, STCG. It EXCLUDES Qualified Dividends and LTCG unless you elect to tax them at ordinary rates.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Including qualified dividends in NII without the election.

A taxpayer has $5,000 of investment interest expense in the current year. The taxpayer has $3,000 of interest income and $2,000 of qualified dividends. The taxpayer does NOT elect to treat the qualified dividends as investment income. What is the investment interest expense deduction?

How to approach this question

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Practice the full CPA REG Practice Exam 4

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