For the individual taxpayer, what is the deduction allowed regarding investment interest?
Investment interest expense deduction is allowed to the extent of the taxpayer’s net investment income.-Itemized deduction
For individual taxpayers in the United States, the deduction allowed regarding investment interest is limited to the amount of their net investment income for the tax year. Net investment income is the excess of the taxpayer’s investment income over their allowable investment expenses.
Investment income includes taxable interest, dividends, annuities, royalties, and short-term capital gains. Allowable investment expenses include investment interest, investment advisory fees, and other expenses related to the production of income from investments.
Taxpayers can deduct investment interest expenses to the extent that they have investment income, subject to certain limitations. For tax years 2018 through 2025, the deduction for investment interest is limited to the taxpayer’s net investment income, and the excess interest expense may be carried forward to future years.
It is important to note that there are also special rules that apply to investment interest deductions for certain types of investments, such as passive activities and real estate. Taxpayers should consult with a tax professional to determine their specific deduction eligibility and limitations based on their unique financial situation.
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