Patricia purchased a home on January 1, 2017, for $1,200,000 by making a down payment of $100,000 and financing the remaining $1,100,000 with a loan, secured by the residence, at 6 percent. From 2017 through 2020, Patricia made interest-only payments on the loaneach year in the amount of $66,000. What amount of the $66,000 interest expensethat Patricia paid during 2020 may she deduct as an itemized deduction? (Assume not married filing separately.)

Question

Quizplus · Accepted Answer

To determine the amount of interest expense that Patricia can deduct in 2020, we need to examine her loan balances at the beginning and end of the year.

As of January 1, 2020, Patricia's loan balance would have been $1,100,000. Assuming that she made all interest payments during the year, her loan balance would still be $1,100,000 on December 31, 2020.

Therefore, Patricia paid $66,000 in interest expense during 2020. Since the interest is deductible for tax purposes, Patricia may deduct the full $66,000 as an itemized deduction on her tax return.

Patricia Purchased a Home on January 1, 2017, for $1,200,000