Choice "A" is correct. The deduction for investment interest expenses is limited to net taxable investment income which is defined as taxable investment income minus all related investment expenses (other than investment interest expense). If the investment expense is an itemized deduction, then only those expenses exceeding 2% of AGI are considered.Taxable investment income includes: (i) interest and dividends (if taxed at ordinary income tax rates), (ii) rents (if the activity is not a passive activity), (iii) royalties (in excess of related expenses), (iv) net short-term capital gains, and (v) net long-term capital gains if the taxpayer elects not to claim the net capital gains reduced tax rate.Calculation:

The taxpayer's deduction for investment interest expense is $2,000: the lesser of (i) $2,000 net investment income or (ii) $5,000 investment interest expense.Choices "b", "d", and "c" are incorrect per the above rule and per the above computations.