Reference no: EM132768566

Problem 1: In which situation would Keith be UNABLE to deduct the interest expense he incurred?

1. Last year, Keith paid $12,800 in interest on the mortgage on his principal residence. The house is not used for any other purpose other than for Keith's personal use.
2. Keith borrowed $35,000 from his home equity line of credit which carries an 8% interest rate. He invested the money in the publicly traded common shares of a Canadian company that has never before paid dividends to shareholders. However, this year, due to a surplus of cash, the company announced a dividend will be paid. 
3. Keith owns a condominium which he uses as a rental property. He incurred interest expenses of $19,500 on the mortgage on the property. 
4. Keith borrowed $15,000 from his personal line of credit and used the funds to establish a part-time home renovation business.
5. Last year, Keith's parents gave him a $50,000 interest-free loan and told him to repay the money whenever he could. Today, Keith repaid his parents the $50,000. Even though it was not part of the arrangement, Keith also paid them an additional $5,000 which he figures is a reasonable interest payment on the borrowed funds.

a) i and v

b) ii and iii

c) i, ii and iv

d) iii, iv and v