Jarret owns city of Savannah promises with an adjusted basis of $100000. During the year he receives interest payments of $3000. Jarret partially financed the purchase of the bonds by borrowing $80000 at 5% interest. Jarret's interest payments on the loan this year are $4000 and his principal payments are $900.
a. Must Jarret report any interest income this year?
b. Can Jarret deduct any interest expense this year?