Question

Required information The following information applies to the questions displayed below.) Javier and Anita Sanchez purchased a home on January 1 of year 1 for $1,000,000 by paying $200,000 down and borrowing the remaining $800,000 with a 6 percent loan secured by the home. The Sanchezes made interest-only payments on the loan in years 1 and 2. (Leave no answer blank. Enter zero if applicable.) a. Assuming year 1 is 2017, how much interest would the Sanchezes deduct in year 2? Maximum deductible interest expense

Answer 1

The key point to understand is whether there is a change in principal or not. In this case, the principal amount ie the amount that is borrowed does not change for both Year 1 and 2 thus the interest payable for both years will be same.

Thus interest payable for year 2 is $800000 * 6% = $48000