Client Facts Our client, Mr. and Mrs. Brown live in South Dakota. They own their home. They hold as investments the debt of several domestic corporations. They report the interest on the investments as gross income. To diversify their portfolio, Mr. and Mrs. Brown took out a large mortgage on their home and applied a portion of the proceeds to purchase some City of Chandler School Bonds. The remainder of the proceeds were used to expand the facilities of Mrs. Brown's dental clinic. Mr. and Mrs. Brown want to know if they can deduct the interest expense on the mortgage on their individual income tax return? Issue - Is interest expense paid on debt used to purchase tax-exempt bonds deductible? Keyword Search - "tax exempt interest" and "related interest expense deduction"