On January 1 of year 1, Arthur and Aretha Franklin purchased a home for $1.40 million by paying $230,000 down and borrowing the remaining $1.170 million with a 15 percent loan secured by the home. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount. Omit the "$" sign in your response.)
Assume the same facts as in (b), except that the Franklins borrow $82,500 secured by their home.
If they use the loan proceeds to substantially improve the home, what amount of interest expense may the Franklins deduct in year 3 on this loan?