Question

gene owns his own home, which he bought several years ago. his original mortgage which was used to buy the house is $150,000, in the current year, he obtains a home equity loan on the house of $90,000. the interest on the original mortgage is $15,000 and on the new loan is $10,000. the fair market value of the house is $325,000. how much of this interest is deductible as qualified residence interest

a 0

b $10,000

c $15,000

d $25,000

Answer 1

Answer (D) $25,000 is correct.

Explanation: Gene has taken aquisition debt mortgage of $150,000. This amount does not exceeds the prescribeb limit of $750,000. Thus, the interest of $15,000 is fully deductible.

Howevrer, Gene has taken Home Loan Equity (second loan) of $90,000 is less than $100,000 the prescribed limit for home loan equity.TGene equity in the home is $175,000 (Fair vale $325,000 - Moatgage value $150,000). The second loan obtained is not more than $175,000. Assuming that the entire proceeds from Home Loan Equity is used for the purpose of improvment oof the house or buy another, additional interest of $10,000 would also qualify as Qualified Resident Interest as the combined, aquisition debt and Home loan Equity ($150,000 + $90,000) does not exceeds maximum limit of $ 750,000 (for married couple filling separately$375,000).