Accredited Wealth Management Advisor Practice Exam

The limit for deducting investment interest expense is tied directly to an individual’s net investment income. This means that taxpayers can deduct investment interest expenses only up to the amount of their net investment income for the tax year.

Therefore, if Bob has a certain amount of investment interest expense, he can fully deduct that amount against his net investment income. If his investment interest expense exceeds his net investment income, he cannot deduct more than the income amount, and any excess can be carried forward to future tax years.

This approach ensures that the deduction effectively reflects Bob's actual income generated from investments, avoiding a scenario where a taxpayer could deduct more than they earn from their investments. Thus, the deduction limit being equal to the total amount of investment interest expense—when it does not exceed net investment income—supports the principle of aligning deductions with actual income generated from investments.