In year 1, Kris purchased a new home for $340,000 by making a down payment of $2
ID: 2473238 • Letter: I
Question
In year 1, Kris purchased a new home for $340,000 by making a down payment of $255,000 and financing the remaining $85,000 with a loan, secured by the residence, at 6 percent. As of January 1, year 4, the outstanding balance on the loan was $68,000. On January 1, year 4, when his home was worth $510,000, Kris refinanced the home by taking out a $255,000 mortgage at 8 percent. With the loan proceeds, he paid off the $68,000 balance of the existing mortgage and used the remainder for purposes unrelated to the home. During year 4, he made interest only payments on the new loan of $20,400. What amount of the $20,400 interest expense on the new loan can Kris deduct in year 4 on the new mortgage as home related interest expense?
$8,500.
$13,600.
$13,440.
$20,400.
Explanation / Answer
$20,400
Kris can deduct full amount .