If they do not use the loan proceeds to substantially

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Reference no: EM13599688

On January 1 of year 1, Arthur and Aretha Franklin purchased a home for $1.40 million by paying $230,000 down and borrowing the remaining $1.170 million with a 15 percent loan secured by the home. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount. Omit the "$" sign in your response.)

Assume that in year 2, the Franklins pay off the entire loan but at the beginning of year 3, they borrow $312,000 secured by the home at a 15 percent rate. They make interest-only payments on the loan during the year.

b-1. If they do not use the loan proceeds to substantially improve the home, what amount of interest expense may the Franklins deduct in year 3 on this loan?

Reference no: EM13599688

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