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Josh borrowed $73,000 from the First State Bank using his business assets as collateral. He used the money to buy City of Blanksville bonds. Over the course of a year, Josh paid interest of $13,500 on the borrowed funds, but he received $9,400 of interest on the bonds.
Expert Answer
$0. The interest expense is not deductible (expense associated with tax-exempt income).
It is stated that the expenses incurred to earn an exempted income is also not deductible. Hence, in this case $0, is deductible.
