**PLEASE HELP** On January 1 of year 1, Arthur and Aretha Franklin purchased a h
ID: 2348786 • Letter: #
Question
**PLEASE HELP**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.)
B. 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-2. If they use the loan proceeds to substantially improve the home, what amount of interest expense may the Franklins deduct in year 3 on this loan?
Deductible interest expense $
Explanation / Answer
b-2: If the Franklins use the proceeds of the loan to substantially improve the home, they may deduct the full $46,800 of interest paid on the loan ($312,000 × 15%).
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