This year, Randy paid $31,150 of interest on his residence. (Randy borrowed $828,000 to buy his...

This year, Randy paid $31,150 of interest on his residence. (Randy borrowed $828,000 to buy his residence, which is currently worth $920,000.) Randy also paid $3,550 of interest on his car loan and $5,775 of margin interest to his stockbroker (investment interest expense). How much of this interest expense can Randy deduct as an itemized deduction under the following circumstances?

a. Randy received $3,040 of interest this year and no other investment income or expenses. His AGI is $75,000.

b. Randy had no investment income this year, and his AGI is $75,000.

Expert Solution

Part A

Randy can deduct $34190 (31150+3040). The interest on the car loan is nondeductible personal interest but Randy may deduct all $31150 of his interest on the home loan as an itemized deduction. The $5775 of margin interest is likely investment interest, and this itemized deduction is limited to net investment income. Because the $3040 of interest income qualifies as investment income and Randy apparently has no other investment expenses, the investment interest expense would be limited to his $3040 in net investment income.

Part B

Randy may deduct all $31150 of his interest on the home loan as an itemized deduction. Randy apparently has no net investment income. Hence, the investment interest would not be deductible this year and would carry forward to next year.

ekkarill92 answered 2 years ago

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This year, Randy paid $31,150 of interest on his residence. (Randy borrowed $828,000 to buy his...

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