Question

Which of the following types of interest expense generally is not deductible to any extent? a. Interest expense attributable to a $35,000 second mortgage on the taxpayer’s principal residence. (The proceeds of the loan were used to purchase an automobile used solely for personal purposes.) b. Interest expenses attributable to a $90,000 debt secured by a principal residence. (The proceeds of the debt, which exceed the original cost of the home, were used to pay for a vacation.) c. Interest expense attributable to a $29,500 debt incurred to finance the purchase of an automobile. (The car was used by a self employed person solely for business.) d. Interest expense attributable to debt incurred to finance the purchase of tax exempt securities. e. Interest expense attributable to a $85,000 debt. (The proceeds of the loan were used to purchase Ford Motor Co. stock, and the taxpayer’s interest income and dividends received from the stock exceed the interest expense on this loan.) f. More than one of the above.

Answer 1

Answer:

D) Interest expense attributable to debt incurred to finance the purchase of tax exempt securities.

Explanation to the answer:

Interest expanses of the option A and Interest expanses of the option B are fully deductible because they are qualified resident interest and so it is fully deductible.

Interest expanses of the option C is also fully deductible because it is business Exp. so it is fully deductible.

Interest expanses of the option E that is investment interest Exp. and it is deductible to the extent of net Investment income

So out of option given options. the option D) that is Interest expense attributable to debt incurred to finance the purchase of tax exempt securities is generally is not deductible to any extent