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Fred Harvey, a cash-basis taxpayer, elected to itemize his deductions on his Year 2 income tax return. Harvey plans to itemize again in Year 3. The following information relating to his state income taxes is available: Taxes withheld in Year 3 $2,500 Refund received in Year 3 of Year 2 tax 500 Assessment paid in Year 3 of Year 1 tax 700 The above information should be reported by Harvey in his Year 3 tax return as O A. State and local income taxes of $3,200. O B. State and local income taxes of $2,500. C. State and local income taxes of $3,200 and gross income from state and local income tax refund of $500. OD. State and local income taxes of $2,700. Mr. and Mrs. L are calendar-year, cash-basis taxpayers. They have their own business, which they operate as a sole proprietorship. In addition, they own several investments including a 4-year-old rental property in whose operations they do not materially participate. Mr. and Mrs. L are not involved in a real property trade or business for purposes of Sec. 469. In the current year, the rental property produced a net loss of $40,000 including interest expense of $90,000. In addition, Mr. and Mrs. L paid the following amounts of interest expense: Interest on home mortgage $ 4,500 Interest on business loan 35,500 Interest on loan to purchase 10,000 shares of ABC Corporation stock 45,000 $85,000 Mr. and Mrs. L had no dividend or interest income in the current year. If they file a joint return, what is the total amount deductible as investment interest on their 1040 for the current year? A. $37,500 B. $2,000 C. $9,000 OD. $0

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