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

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The credit card interest of $1,000 is nondeductible personal interest. The remaining interest can be categorized as follows:

- $15,000 on acquisition debt for her home (fair market value of $500,000) can be deducted as qualified residence interest.
- $4,000 interest on her $30,000 home-equity loan can also be deducted as qualified residence interest.
- $3,000 of margin interest for the purchase of stock can be deducted as investment interest.

Since Margaret has $10,000 of interest income this year and no investment expenses, she can deduct up to $10,000 of investment interest. Therefore, the total interest deduction allowable for this year is $19,000 ($15,000 + $4,000 + $3,000 - $1,000). Option B is the closest to this number.

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