In Year 1, Abby Purchased a New Home for $200,000

question 109

Multiple Choice

In year 1, Abby purchased a new home for $200,000 by making a down payment of $150,000 and financing the remaining $50,000 with a loan, secured by the residence, at 6 percent. As of January 1, year 4 the outstanding balance on the loan was $40,000. On January 1, year 4, when her home was worth $300,000, Abby refinanced the home by taking out a $120,000 mortgage at 5 percent. With the loan proceeds, she paid off the $40,000 balance of the existing mortgage and used the remaining $80,000 for purposes unrelated to the home. During year 4, she made interest-only payments on the new loan of $6,000. What amount of the $6,000 interest expense on the new loan can Abby deduct in year 4 on the new mortgage as home-related interest expense?

• A)$0.
• B)$2,000.
• C)$5,000.
• D)$6,000.

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Definitions:

Attribution Theory

The theory that we explain someone’s behavior by crediting either the situation or the person’s disposition.

Dispositions

Enduring characteristics or tendencies to act or feel in a certain way.

Situational Constraints

External factors that limit or influence an individual's ability to perform a task or achieve a goal.

Personality Traits

Enduring patterns of thought, feeling, and behavior that characterize an individual across different situations and over time.