Question

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?
A. $23,000.
B. $22,000.
C. $19,000.
D. $18,000.
E. None of these

Answer 1

B. $22,000.

Step-by-step explanation:

The computation of the deduction of interest expense is shown below:

= Interest on her home + interest on home equity loan + margin interest

= $15,000 + $4,000 + $3,000

= $22,000

All other costs should not be eligible for the deduction. Hence ignored it

We simply added these above cost as these are eligible for interest expense deduction