On January 1 of year 1, Arthur and Aretha Franklin purchased a home for $3.3 million by paying $410,000 down and borrowing the remaining $2.89 million with a 9 percent loan secured by the home.

a. What is the amount of the interest expense the Franklins may deduct in year 1?

Deductible interest expense=

b. Assume that in year 2, the Franklins pay off the entire loan but at the beginning of year 3, they borrow $329,000 secured by the home at a 9 percent rate. They make interest-only payments on the loan during the year. What amount of interest expense may the Franklins deduct in year 3 on this loan (the Franklins do not use the loan proceeds to improve the home)?

Deductible interest expense=

c. Assume the same facts as in (b), except that the Franklins borrow $65,000 secured by their home. What amount of interest expense may the Franklins deduct in year 3 on this loan (the Franklins do not use the loan proceeds to improve the home)?

Deductible interest expense= $