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On September 1 of the current year, Mr. Z, a cash-basis, calendar-year, self-employed mechanic, borrowed $10,000...

On September 1 of the current year, Mr. Z, a cash-basis, calendar-year, self-employed mechanic, borrowed $10,000 at 10% for 5 years to purchase equipment with a useful life of 10 years. Z paid the lender a loan origination fee of $3,000 on the loan date. This fee was solely for the use of the money. How much of the $3,000 fee may Z deduct on his Schedule C for the current year?

a.$600

b.$100

c.$200

d.$3000

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Answer #1

The amount 3000 should amortized over the period of loan

Period of loan = 5 years

= 60 months

Deduction for the current year =

( 3000/60)* no of months in present year (loan taken)

= (50)*4

= 200

Option C

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