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investment_interest_limit_solution - Topic Investment...

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Topic: Investment interest limitation [Solution] In February 2009, Jill and Jerry borrow $100,000 at 8% interest to buy stock. They receive qualified dividends of $2,000 from the stock. They have $1,000 of interest income from other investments. They pay $8,000 of interest expense on the borrowed funds. In October 2010 they sell the stock for $104,000. They retire the loan and pay $7,000 of interest. They received $1,000 of qualified dividends before they sell the stock and again have $1,000 of interest income. Required: [1] Assuming they elect to have the qualified dividends taxed at ordinary rates, how much investment interest expense can Jill & Jerry claim as an itemized deduction in 2009? They can claim an itemized deduction of $3,000 for investment interest expense (equal to their net investment income = $2,000 dividends + $1,000 interest). The remaining $5,000 of investment interest expense is carried over and can be deducted against future investment income. [2] Assuming they elect to have the qualified dividends and the long-term capital gain
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