In 2017 (old law), Cathy bought a house (her principal residence) for $2,000,000, paying $500,000 down and borrowing the other $1,500,000 at 5% interest. If her interest expense in 2018 (new law) is $75,000, how much will her maximum deduction for interest expenses be?

Question 6 options:

1)

$75,000 (old law rules "grandfathered" in)

2)

$50,000 (old law rules "grandfathered" in)

3)

$55,000 (old law rules "grandfathered" in)

4)

$0 (old law rules not "grandfathered" in)

5)

None of these