Is year, Amy purchased a personal residence at a cost of $1,000,000. She borrowed $800,000 secured by the home to make the purchase. This year, she paid interest expense on this mortgage of $12,000. How much may she deduct?

 Deductible Interest is $11,250

Explanation:

Compute at the amount of $750,000 the interest Amy could deduct as follows:

Since the interest on loan secured by home could be deduct on the first $750,000 borrowing amount. Hence,

 Deductible Interest = Interest Paid × ($750,000 / Loan Secured by income)

 Deductible Interest = $12,000 × ($750,000 / $800,000)

 Deductible Interest = $11,250

Hence, the Amy could deduct interest on borrowing $11,250

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