Stephanie, a taxpayer in the 24% marginal tax bracket, borrows $100,000 at 7% interest to invest in 6% tax-exempt municipal bonds (annual loan interest expense is $7,000).What is Stephanie's interest expense deduction?

Question

Quizplus · Accepted Answer

Interest on loans to purchase tax-exempt securities, such as municipal bonds, is not deductible. Therefore, Stephanie cannot deduct any of the interest expense incurred from borrowing money to invest in tax-exempt municipal bonds.

Stephanie, a Taxpayer in the 24% Marginal Tax Bracket, Borrows