Tracing rules for loan proceeds & land developer gain. Is interest expense deductible? What is the amount of the gain?
Case 1: A lawyer withdraws his entire capital account from his law firm and uses the funds to finance the purchase of a home in which he resides. On the same day, the lawyer borrows an equivalent amount of funds by way of bank loan and deposits the funds to his law firm. Issue: Is the interest expense on the bank loan de