T Was Looking for a House When He Happened Upon

question 11

Multiple Choice

T was looking for a house when he happened upon an old mansion.After looking it over, he decided that although he would not want to live there himself, it would be a good investment.As a result, he decided to buy it to hold as rental property.T borrowed $100,000 from his bank to finance the purchase.The loan was to be repaid over a 10-year period starting January 5 of the following year.In addition, he paid five points for the loan.T closed the deal in early December and paid the closing costs, including the points, at that time.T also paid his first installment on the loan in late December, even though it was not due until January 5 of the following year.The installment he paid included $800 of interest.How much can T deduct in the year of the closing? (T is a cash basis taxpayer.)

• A)$0
• B)$41.67
• C)$800
• D)$5,000
• E)$5,800

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Definitions:

UCC

A collection of laws and regulations in the United States that govern commercial transactions and the sale of goods.

Common Law

A legal system based on judicial decisions and precedents rather than statutory laws.

Technical Rules

Specific guidelines or procedures established in a field or profession to ensure accuracy, consistency, and standardization.

Good Faith

Acting with honest intent without seeking to take unfair advantage over another party.