Edward, a single individual with a 28 percent marginal tax rate, incurs interest expense of $10,000 attributable to his investment in stocks and bonds. His gross investment income is $6,200 ($1,000 of which is from long-term capital gains and dividend income), and his adjusted gross income, including his investment income, is $68,000. Edward incurs a $100 brokerage account maintenance fee and a $300 certified financial planner’s counseling fee. He also has $1,200 of other qualifying miscellaneous itemized deductions.

a. How much can Edward deduct for miscellaneous itemized deductions?

b. What are Edward’s options in determining his deduction for investment interest expense? Explain.

c. What happens to the investment interest expense that he cannot deduct in the current year?

AppendixLO1