Question

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This year, Randy paid $30,850 of interest on his residence. (Randy borrowed $488,000 to buy his residence, and it is currently worth $538,000.) Randy also paid $3,450 of interest on his car loan and $5,625 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?

a. Randy received $2,960 of interest this year and no other investment income or expenses. His AGI is $75,000.

Interest Deductible ______________

Required information

[The following information applies to the questions displayed below.]

This year, Randy paid $30,850 of interest on his residence. (Randy borrowed $488,000 to buy his residence, and it is currently worth $538,000.) Randy also paid $3,450 of interest on his car loan and $5,625 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?

b. Randy had no investment income this year, and his AGI is $75,000.

Interest deductible _______________

Answer 1

a.Randy can deduct $33,810. The interest on the car loan is nondeductible personal interest but Randy may deduct all $30,850 of his interest on the home loan as an itemized deduction. The $5,625 of margin interest is likely investment interest, and this itemized deduction is limited to net investment income. Because the $2,960 of interest income qualifies as investment income and Randy apparently has no other investment expenses, the investment interest expense would be limited to his $2,960 in net investment income.

Interest deductible = $33,810

b. Randy may deduct all $30,850 of his interest on the home loan as an itemized deduction. Randy apparently has no net investment income. Hence, the investment interest would not be deductible this year and would carry forward to next year.

Interest deductible = $30,850

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