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investment_interest_limit_solution - Solution Investment...

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Solution : Investment interest limitation (Sec. 163(d)) In February 2010, 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 2011 they sell the stock for $104,000. They pay-off the loan and pay $7,000 of interest. They received $1,000 of qualified dividends before they sold the stock and again have $1,000 of interest income. Required: [1] Assuming they do not elect to have the qualified dividends or the long-term capital gain taxed at ordinary rates in either year, how much investment interest expense can Jill & Jerry claim as an itemized deduction in 2010? And in 2011? They can deduct only $1,000 of investment interest expense in both 2010 and 2011 – equal to their net investment income of $1,000 (interest revenue). They have a $7,000 ($8,000 – $1,000) carryover at the end of 2010, and an additional $6,000 ($7,000 – $1,000) in 2011. Their total investment interest expense carryover is now $13,000.
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