George recently received a great stock tip from his friend, Mason. George didn’t have any cash on hand to invest, so he decided to take out a $35,000 loan to facilitate the stock acquisition. The loan terms are 8 percent interest with interest-only payments due each year for five years. At the end of the five-year period the entire loan principal is due. When George closed on the loan on April 1, 2020, he decided to invest $28,000 in stock and to use the remaining $7,000 to purchase a four-wheel recreation vehicle. George is unsure how he will treat the interest paid on the $35,000 loan. In 2020, George paid $2,100 interest expense on the loan. (Hint: Visit https://www.irs.gov/ and consider IRS Publication 550.)
George recently received a great stock tip from his friend, Mason. George didn’t have any cash on hand to invest, so he decided to take out a $35,000 loan to facilitate the stock acquisition. The loan terms are 8 percent interest with interest-only payments due each year for five years. At the end of the five-year period the entire loan principal is due. When George closed on the loan on April 1, 2020, he decided to invest $28,000 in stock and to use the remaining $7,000 to purchase a four-wheel recreation vehicle. George is unsure how he will treat the interest paid on the $35,000 loan. In 2020, George paid $2,100 interest expense on the loan. (Hint: Visit https://www.irs.gov/ and consider IRS Publication 550.)
What amount may he deduct as interest in 2020?
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