In 2019, Max sold one of her rental houses to her Friend, for a price of $200,000. Because her Friend's credit was poor and Friend could not get a traditional mortgage loan, Max agreed to finance the entire price, at 6% interest. The loan will be interest-only for a few years until Friend can get her credit back in shape and can afford to refinance the loan. Friend pays Max the agreed payments during the year, and Max calculates the interest for the loan payments at $12,000. Friend signed a promissory note, and a deed of trust, but Max didnt record the deed of trust, so that the debt would not show up on Friends credit report for a couple of more years.

a. Friend will be able to deduct the entire $12,000 mortgage interest paid as acquisition debt, on Schedule A.

b. Friend will only be able to deduct the first $6,000 in mortgage interest paid, on Schedule A.

c. Friend will not be able to deduct any of the interest paid.

Given the same facts of Question, Max will have to report how much as interest income on her tax return?

a. $ 0

b. $ 6,000

c. $ 12,000