Required information
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On January 1 of year 1, Jason and Jill Marsh acquired a home for $500,000 by paying $400,000 down and borrowing
$100,000 with a 7 percent loan secured by the home. On January 1 of year 2, the Marshes needed cash so they
refinanced the original loan by taking out a new $250,000 7 percent loan. With the $250,000 proceeds from the new
loan, the Marshes paid off the original $100,000 loan and used the remaining $150,000 to fund their son's college
education.
a. What amount of interest expense on the refinanced loan may the Marshes deduct in year 2?
Deductible interest expense
