Question

This year, Randy paid $28,450 of interest on his residence. (Randy borrowed $504,000 to buy his residence, which is currently worth $560,000.) Randy also paid $2,650 of interest on his car loan and $4,425 of margin interest to his stocKBroker (investment interest expense). How much of this interest expense can Randy deduct as an itemized deduction under the following circumstances?

Answer 1

Randy can fully deduct the $28,450 paid as interest on his home mortgage as an itemized deduction, but he cannot deduct the $2,650 paid for his car loan interest.

Step-by-step explanation:

Regarding the deduction of interest expenses on Randy's residence, car loan, and investment interest, the IRS allows homeowners to deduct mortgage interest on loans up to $750,000 for a home purchased after December 15, 2017. Since Randy paid $28,450 on a residence with a loan amount of $504,000, this interest will fully qualify for the itemized deduction.

However, personal interest, such as on a car loan, is not deductible, so the $2,650 car loan interest cannot be deducted. Regarding the $4,425 of margin interest for investments, Randy can potentially deduct this as investment interest expense to the extent of his net investment income.