Question

This year (2020), Major Healy paid $37,000 of interest on a mortgage on his home (he borrowed $740,000 to buy the residence in 2015; $840,000 original purchase price and value at purchase), $5,500 of interest on a $110,000 home equity loan on his home (loan proceeds were used to buy antique cars), and $9,500 of interest on a mortgage on his vacation home (borrowed $190,000 to purchase the home in 2010; home purchased for $475,000). Major Healy’s AGI is $220,000. How much interest expense can Major Healy deduct as an itemized deduction?

Answer 1

In the US Tax Code, individuals that established their home loans before December 15, 2017, can deduct their mortgage interest on their home loans if the value of the home loans were under $1 million dollars. After December 15, 2017, that limit has been reduced to $750,000.

Home loans before Dec 15 2017- interest deduction allowed if loan under $ 1 million dollars

Home loans after Dec 15 2017- interest deduction allowed if loan under $ 7,50,000 dollars

Therefore total interest deduction for Major Healy;

on his home in 2015; $37000;

For Home equity loan , loan proceeds were used to buy antique cars, hence no deduction;

interest on a mortgage on his vacation home; $9500

Hence, total interest deduction is $ 46,500