Question

This year, Major Healy paid $33,250 of interest on a mortgage on his home (he borrowed $665,000 to buy the residence in 2015; $765,000 original purchase price and value at purchase), $5,000 of interest on a $100,000 home equity loan on his home (loan proceeds were used to buy antique cars), and $5,750 of interest on a mortgage on his vacation home (borrowed $115,000 to purchase the home in 2010; home purchased for $287,500). Major Healy’s AGI is $220,000. How much interest expense can Major Healy deduct as an itemized deduction?

What is the Interest Deductible? Please show work.

Answer 1

Major Healy cannot take the interest deduction of home equity loan as the loan proceeds was used to buy antique cars.

Total amount of loan of Major Healy = $665,000 + $115,000 = $780,000

The maximum amount of loan on which we can take the deduction of interest is $1,000,000 (Since the debt were secured after October 13, 1987 and prior to December 16, 2017) and the amount is $500,000 if married filing separately.

Since, the total mortgage of Major Healy is below the limit of $1 million, we can take the full deduction of interest on qualified mortgage of $39,000 ($33,250 + $5,750).

So here the interest deductible as itemized deduction is $39,000.