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T takes out a home equity loan for $25,000 at 10 percent. He immediately purchases...

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Accounting

T takes out a home equity loan for $25,000 at 10 percent. He immediately purchases $25,000 of tax-exempt bonds earning 8 percent a year. The IRS will probably

a. view the income from the bonds as taxable.

b. declare that the results of the transactions cancel each other out, so that they are a "wash" for T.

c. allow the interest deduction.

d. deny the deduction for the interest expense.

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