Question

Bridgett’s son, Clyde, is $12,000 in arrears on his residential mortgage payments. Of the $12,000, $7,500 represents interest and $4,500 represents principal.

1. If Bridgett pays the $12,000 to the lender, how much can she deduct? How much can Clyde deduct?

2. If Bridgett pays the $7,500 of interest to the lender and lends or gives $4,500 to Clyde, who pays the $4,500 of principal, how much can Bridgett deduct? How much can Clyde deduct?

3. If Bridgett gives or lends the $12,000 to Clyde who pays the lender, how much can he deduct? How much can Bridgett deduct?

4. Advise Bridgett and Clyde on how the payment should be made.

Answer 1

Answer:-

Explanation :-

●a) A deduction cannot be taken for paying another taxpayer’s obligation. So if Bridgett pays the lender, neither Bridgett nor Clyde could deduct the $7,500 of mortgage interest expense.

●b. Bridgett cannot deduct the $7,500 payment identified as interest since this represents the payment of another taxpayer’s obligation. Even though Clyde has identified the $4,500 payment as relating to the principal of the mortgage, he probably can deduct the $4,500 as mortgage interest expense since Bridgett is not allowed the deduction. In any event, Bridgett is not allowed a deduction.

●c. Clyde could deduct the $7,500 of mortgage interest expense, andBridgett would receive no deduction.

●d. Bridgett should either loan or give the funds to Clyde who thenmakes the mortgage payments of $12,000 ($7,500 interest + $4,500 principal)