Rich and Shauna Nielson file a joint tax return, and they itemize deductions. As
ID: 2706314 • Letter: R
Question
Rich and Shauna Nielson file a joint tax return, and they itemize deductions. Assume their marginal tax rate on ordinary income is 25 percent. The Nielsons incur $2,750 in miscellaneous itemized deductions, excluding investment expenses. They also incur $2,200 in noninterest investment expenses during the year. What tax savings do they receive from the investment expenses under the following assumptions:
Rich and Shauna Nielson file a joint tax return, and they itemize deductions. Assume their marginal tax rate on ordinary income is 25 percent. The Nielsons incur $2,750 in miscellaneous itemized deductions, excluding investment expenses. They also incur $2,200 in noninterest investment expenses during the year. What tax savings do they receive from the investment expenses under the following assumptions:
Explanation / Answer
Rich and Shauna Nielson file a joint tax return, and they itemize deductions. Assume their marginal tax rate on ordinary income is 25 percent. The Nielsons incur $2,750 in miscellaneous itemized deductions, excluding investment expenses. They also incur $2,200 in noninterest investment expenses during the year. What tax savings do they receive from the investment expenses under the following assumptions:
Their AGI is $95,000.
a. The Nielsons have $4950 of miscellaneous itemized deductions including investment expenses. These deduction are only deductible to the extent they exceed 2 percent of AGI. If AGI is $95,000, 2 percent of AGI is $1,900 and $3050 of the $4950 is deductible. The deductible portion is first treated as investment expense and then noninvestment miscellaneous itemized deductions. In this situation, all $2,200 of the investment expenses are deductible ($850 of the other miscellaneous itemized deductions are deductible). The tax benefit of the investment expenses is $550 (i.e., $2200 deduction
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