Patricia purchased a home on January 1, 2017 for $1,270,000 by making a down payment of $100,000 and financing the remaining $1,170,000 with a 30-year loan, secured by the residence, at 6 percent. During year 2017 and 2018, Patricia made interest-only payments on the loan of $70,000. what amount of the

Income Tax Fundamentals 2020

38th Edition

ISBN:9780357391129

Author:WHITTENBURG

Publisher:WHITTENBURG

Chapter5: Deductions For And From Agi

Section: Chapter Questions

Problem 25MCQ

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

Patricia purchased a home on January 1, 2017 for $1,270,000 by making a down payment of $100,000 and financing the remaining $1,170,000 with a 30-year loan, secured by the residence, at 6 percent. During year 2017 and 2018, Patricia made interest-only payments on the loan of $70,000. what amount of the $70,200 interest expense Patricia paid during 2018 may she deduct as an itemized deduction? (Assume not married filing separately.)

Multiple Choice

____ $0.

____ $10,200.

____ $60,000.

____ $70,200.

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