Question

Jorge received a stock tip from a long-time friend. Since he did not have enough cash on hand to invest, Jorge decided to take out a $20,000 loan in order to buy the stock. The loan terms were 8 percent interest with interest-only payments due each year for five years. At the end of the five-year period the entire loan principal is due. When Jorge closed on the loan on April 1, 2017, he decided to invest $16,000 in stock and to use the remaining $4,000 to purchase a jet-ski. Jorge is unsure how he will treat the interest paid on the $20,000 loan. In 2017, Jorge paid $1,200 interest expense on the loan. For tax purposes, how should he treat the 2017 interest expense? (Hint: Visit www.irs.gov and consider IRS Publication 550)

Answer 1

As per IRS publication 550 when a person borrows money for both personal and investment purpose than you need. So for investment interest only the portion of loan taken for investment is deducted.
The interest expenses deducted would be calculated as
First % portion of investment will be calculated
16000/20000*100	80	%
Interest expenses
1200*80%	960
Answer For tax purpose $960 will be deducted
and $240 (1200*20%) will not be deducted as it is for personal purpose