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 noinvestment expenses. How much of the interest expense may she deduct this year?

Question

Quizplus · Accepted Answer

The correct answer is A. The total interest expense is $23,000 ($15,000 + $4,000 + $1,000 + $3,000). However, only $18,000 of the interest expense is deductible. The interest on the margin loan is not deductible because it is used to purchase stock. The interest on the credit card is not deductible because it is not secured by the taxpayer's home.

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