Question

Which of the following payments may be deducted in full in the current year as interest...

Which of the following payments may be deducted in full in the current year as interest expense on Form 1040, Schedule A?

1. Mortgageprepaymentpenalty
2. Interestrelatingtotax-exemptinterestincome

3. Installmentplaninterestforclothespurchases

4. Mortgage interest
5. Creditinvestigationfees

A. 1, 3, and 5.

B. 1 and 4.

C. 2, 4, and 5.

D. 3 and 4.

Business   Accounting   
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Homework Answers

Answer #1

Answer B 1&4

Types of interest deductible as itemized deductions on Schedule A (Form 1040 or 1040-SR, Itemized Deductions (PDF) include:

  • Investment interest (limited to your net investment income) and
  • Qualified mortgage interest including points (if you're the buyer);

Types of interest not deductible include personal interest, such as:

  • Interest paid on a loan to purchase a car for personal use.
  • Credit card and installment interest incurred for personal expenses.
  • Points (if you're a seller), service charges, credit investigation fees, and interest relating to tax-exempt income, such as interest to purchase or carry tax-exempt securities
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