Required information The folowing inlormation applies to the questions displayed

Question

Required information The folowing inlormation applies to the questions displayed below t 1 of 3 Javier and Anita Sanchez purchased a home borrowing the remaining $300,000 with a 7 percent loan secured by the home. The loan for the first five years. The Sanchezes January 1, the Sanchezes also borrowed the loan is 8 percent and the Sanchezes make interest on January 1 of year 1 for $500,000 by paying $200000 down and requires interest only payments would itemize deductions even if they did not have any deductible interest. On money on a second loan secured by the home for $75,000. The interest rate on only payments in year 1 on the second loan (Do not round intermediate celculations. Round your final answers to the nearest whole dollar amount. a Assuming the Sanchezes use the second loan to landscape the yard to their home, what is the maximum amount of ienterest expense (on both loans combined) they are allowed to deduct in year 1? O Answer is complete but not entirely correct 6.000 O 8 7 3 5 6 8 1

Explanation / Answer

Assuming the sanchezes uses the second loan to landscape the yard to their home. what is the maximum amount of interest expense(join both loans combined) they are allowed to deduct in year1?

Ans: Interest on first loan is 21000 ($300,000*7%) and second loan is $6000 ($75000*8%). Both first loan and second loan can be classified as acquisition indebtedness whose limit does not exceed $1,000,000 acquisition debt limit. So they are allowed to deduct $27000 ($21000+$6000) in year 1

$27000

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