Angela enrolls as a student at Local College during the current year. Before she starts school, her.

Angela enrolls as a student at Local College during the
current year. Before she starts school, her parents lend Angela $80,000 with
the stipulation that she will lend the entire $80,000 back to them. The loan is
evidenced by a non-interest-bearing note payable in 10 years. Several days
later, Angela returns the $80,000 to her parents in exchange for their $80,000
note secured by a mortgage on their personal residence. The note has an 8%
interest rate and requires monthly interest payments, with the principal

due in 10 years. Angela’s parents pay her $6,400 in interest
on the loan during
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Angela enrolls as a student at Local College during the
current year. Before she starts school, her parents lend Angela $80,000 with
the stipulation that she will lend the entire $80,000 back to them. The loan is
evidenced by a non-interest-bearing note payable in 10 years. Several days
later, Angela returns the $80,000 to her parents in exchange for their $80,000
note secured by a mortgage on their personal residence. The note has an 8%
interest rate and requires monthly interest payments, with the principal

due in 10 years. Angela’s parents pay her $6,400 in interest
on the loan during the current year. Mortgage interest on a principal residence
is deductible as an itemized deduction. Discuss whether Angela’s parents should
be allowed a deduction for the $6,400 in interest paid to Angela.

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