Question

4. This year, Benjamin Hassell paid $20,000 of interest on a mortgage on his home (Benjamin borrowed $600,000 in 2015 to buy the residence and it is currently worth $1,000,000), $12,000 on a $150,000 home-equity loan on his home, and $10,000 of interest on a mortgage on his vacation home (loan of $300,000; home purchased for $400,000 in 2016; home is not rented out at any time). How much interest expense can Benjamin deduct as an itemized deduction? Please show all workings.

Answer 1

solution: $38,000 • Bengamin's acquisition debt on his home and vacation home does not exceed $1,000,000. • Thus, he can deduct the $20,000 mortgage intrest on his home and $10,000 of mortgage intresat on his vacation home. . Because his home equity debt exceeds $100,000, he can deduct a portion of the interest on the $150,000 home equity debut & i.e. the portion attributable to $100,000 of debt) • Thus benjamin can also deduct $8000 of home equity intrest jul.= $12,000 Introst expense x $100,000 home cquity debt limit $150,000 home equity debut amt - $ 8000 I temized $10,000+ $8000 deduction = $20,000+ - $38,000