Margaret Lindley paid $15,160 of interest on her $301,600 acquisition debt for her home (fair market value of $501,600), $4,160 of interest on her $30,160 home-equity debt, $1,160 of credit card interest, and $3,160 of margin interest for the purchase of stock. Assume that Margaret Lindley has $10,160 of interest income this year and no investment expenses. How much of the interest expense may she deduct this year

Margaret Lindley

Margaret Lindley can deduct  $12,320 of the interest expense this year.

Explanation:

a) Data and Calculations:

Interest on $301,600 acquisition debt for her home = $15,160

Fair market value of home = $501,600

Interest on her $30,160 home-equity debt = $4,160

Credit card interest = $1,160

Margin interest expense = $3,160

Interest income received = $10,160

Deductible interest expense:

Interest on debt for her home = $15,160

Interest on home-equity debt =   $4,160

Margin interest expense =           $3,160

Interest income received =       ($10,160)

Deductible interest expense = $12,320

b)  Margaret cannot deduct her credit card interest because it is considered as a type of personal consumer finance interest.  This type of interest expense is not tax-deductible.

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