Martha borrowed 40,000 from a bank, using the money for investment purposes. Of that 40,000, she invested 20,000 in tax-exempt municipal bonds and 20,000 in taxable corporate bonds. Which of the following statements regarding Martha is CORRECT?
1) Martha can deduct the interest on 20,000 of the loan for tax purposes.
2) Martha can deduct none of the interest on the loan for tax purposes.
3) Martha can deduct the interest on 40,000 of the loan for tax purposes.
4) Martha is engaging in an illegal activity.