Question

On January 1, 2016, your sister's pet supplies business obtained a 30-year amortized mortgage loan for $225,000 at a nominal annual rate of 7.0%, with 360 end-of-month payments. The firm can deduct the interest paid for tax purposes. What will the interest tax deduction be for 2016

Answer 1

Answer:

The interest tax deduction for 2016 will be $15,750.

Explanation:

This can be determined as follows:

Mortgage loan amount = $225,000

Annual nominal interest rate = 7.0%

Monthly nominal interest rate = Annual interest rate / Number of months in a year = 7.0% / 12 = 0.07 / 2 = 0.00583333333333333

Monthly interest amount = Mortgage loan amount * Monthly nominal interest rate = $225,000 * 0.00583333333333333 = $1,312.50

Number of months form January 1, 2016 to December 31, 2016 = 12

Interest tax deduction for 2016 = Monthly interest amount * Number of months form January 1, 2016 to December 31, 2016 = $1,312.50 * 12 = $15,750

Therefore, the interest tax deduction for 2016 will be $15,750.