**PLEASE HELP** On January 1 of year 1, Arthur and Aretha Franklin purchased a h
ID: 2349169 • 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-1 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.
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?
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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