George recently received a great stock tip from his friend, Mason. George didn’t have any cash on hand to invest, so he decided to take out a $20,000 loan to facilitate the stock acquisition. The loan terms are 8 percent interest with interest-only payments due each year for five years. At the end of the five-year period the entire loan principal is due. When George closed on the loan on April 1, 2016, he decided to invest $16,000 in stock and to use the remaining

$4,000 to purchase a four-wheel recreation vehicle. George is unsure how he will treat the interest paid on the $20,000 loan. In 2016, George paid $1,200 interest expense on the loan. For tax purposes, how should he treat the 2016 interest expense? (Hint: Visit www.irs.gov and consider IRS Publication 550.)