Sanjay took out a loan on November 1, Year 1, for \($100,000\) to purchase inventory for his clothing store, which he operates as a cash-basis sole proprietorship. His annual interest rate is 6%. On December 31, Year 1, he pays the \($1,000\) of interest due for Year 1 and also prepays \($3,000\) of interest for the first six months of Year 2.

What is his deduction on his Year 1 tax return for interest expense?

a. $0

b. $1,000

c. $3,000

d. $4,000