Mr.Johnson borrowed money to buy Chicago municipal bonds.This year,he paid $2,000 of interest on his loan and earned $3,500 of interest income from the bonds.None of the interest expense is deductible.

Question

Quizplus · Accepted Answer

The statement says that none of the interest expense is deductible, which means Mr. Johnson cannot deduct the $2,000 he paid in interest on his loan. Since the statement does not provide any indication that the interest income from the bonds is not taxable, it can be assumed that it is indeed taxable. Therefore, Mr. Johnson will have to pay taxes on his net interest income, which is $3,500 - $2,000 = $1,500.

MrJohnson Borrowed Money to Buy Chicago Municipal Bonds