Mary, a taxpayer in the 35 percent marginal tax bracket, borrows $500,000 at 10 percent interest to

Question:

Mary, a taxpayer in the 35 percent marginal tax bracket, borrows $500,000 at 10 percent interest to invest in 7 percent tax-exempt municipal bonds. The annual interest expense on the loan is $50,000. Mary earns $35,000 interest income on the bonds. What is Mary’s interest expense deduction?

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