Question

Jim and Wendy had the following interest expenses in 2019:

Personal Loan………………… $500.00

Student Loan Interest…………. $3,000.00

Mortgage interest……………… $5,000.00

Investment interest…………….$7,500.00

          

           Net investment income for 2019 is $6,000.00.

           What is their interest deduction for 2019?

Answer 1

Ans:-

By assuming Jim and Wendy are filling returns jointly ,and they have some interest expense. They are eligible for some interest diduction.

Calculation of interest diduction:

a). Interest on personal loan. = Nil

b). Interest on Student loan. =$2,500

c). Interest on mortgage and

Investment. =$12,500

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Eligible diduction. =$15,000

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Note:-

a) Any amount taken as loan for incurring personal expenses is not allowed as diduction,hence no diduction is allowed.

b) Loan taken for education as student loan , any interest on such loan is eligible for diduction to the extent of $2,500 . Here interest on Student loan is $3,000 but as per role only $2,500 is eligible for diduction.

c) Here Jim and Wendy filling joint returns so intrest on investment (ie.., by combining both mortgage and investment) there is a eligible diduction upto $12,200 for single filer and for joint filling upto $24,400.

Here by combining both mortgage and investment interest $(5,000+7,500)=$12,500. So eligible diduction is upto $24,400 but interest on investment is $12,500. Then total $12,500 is eligible for diduction.

Total interest eligible for diduction in the year 2019 of Jim and Wendy =nil+$2,500+12,500

=$15,000