Question

"A customer makes an investment in a CMO. In a given year, she receives $24,000 of payments, of which $6,000 is principal and $18,000 is interest. Which statement is TRUE about the taxation of the payments received?"

Answer 1

Answer:

Only the interest amount received is taxable.

Explanation:

CMO refers to Collateralised Mortgage Operation in this whenever one receives a payment it is joint of some principal and remaining amount as an interest.

The principal received only decreases the debt, that is created in a CMO. Thus, is not to be considered as an income in any manner.

Interest received is a part of income as do not decrease the liability of debt, rather increases the revenue, and is therefore, taxable.