Toya and Sam Erwin have just formed the Ewrin Manufacturing, LLC. They will be purchasing a large amount of equipment using a $500,000 bank loan.The bank has required them to personally guarantee the loan.They also bought the building in which they will house their business.They took out a $1,000,000 mortgage to pay for the building.Neither member was required to guarantee that loan.Samhas loaned the LLC $50,000 to help pay for start-up expenses.In addition, they have a line of credit, but do not plan to borrow anything against it right now.Toya and Sam expect to have about $40,000 in accounts payable at the end of the year.

Toya and Sam need to know whether they can take a deduction for the debt they have incurred and if not, how do the loans affect them.