Margaret Lindley paid $15,000 of interest on her $300,000 acquisition debt for her home (fair market value of $500,000), $4,000 of interest on her $30,000 home-equity loan, $1,000 of credit card interest, and $3,000 of margin interest for the purchase of stock. Assume that Margaret Lindley has $10,000 of interest income this year and no investment expenses. How much of the interest expense may she deduct this year?

Question

Quizplus · Accepted Answer

Margaret Lindley can deduct the interest paid on the first $750,000 of acquisition debt and home-equity loan interest up to $100,000. Therefore, she can deduct $15,000 (acquisition debt interest) + $4,000 (home-equity loan interest) = $19,000. The credit card interest and margin interest are not deductible. Deductible interest expenses exceed interest income by $9,000 ($19,000 - $10,000), so she can deduct the full $9,000. Therefore, the total deductible interest expense is $19,000 + $9,000 = $22,000.

Margaret Lindley Paid $15,000 of Interest on Her $300,000 Acquisition