3 (20 Marks)

Each of the following independent cases involves interest payments and the issue is interest deductibility.

Case A: Donna West borrowed $ 400,000 and used the funds to purchase an income producing property. Later on, she sold the property for $ 160,000. She used the $ 160,000 to acquire two properties: property A cost $ 50,000 and property B cost $ 110,000. How will the $ 400,000 in borrowing be linked to the two properties?

Case B: Conrad Kirk borrowed $ 80,000 and used the funds to acquire an income producing property. He then sold the property for $ 200,000. He used the proceeds to acquire two properties: property A cost $ 70,000 and property B cost $ 130,000. How will the $ 80,000 in borrowing be linked to the two properties?

Case C: Betty Best owned securities that had a current fair market value of $ 500,000. Using her margin balance available from her stockbroker, she borrowed $ 75,000 to finance a necklace purchase to give to her mother. During the time period when the margin loan was outstanding, she paid $3,000 interest on it. Can she deduct this interest against the $ 12,000 income earned during this period on her securities? Explain your conclusion.

Case D: Andy Block borrowed $ 350,000 and invested the entire loan proceeds in publicly traded securities. After 8 months, the securities' value dropped to $ 250,000. At this point, Andy Block sold the securities and used the proceeds to reduce the loan to $ 100,000. Since he no longer owns the securities, can Andy Block deduct the interest on the remaining loan amount of $ 100,000? Explain your conclusion.