In year 1, Jaspreet purchased a new home for $450,000 by making a down payment o
ID: 2473571 • Letter: I
Question
In year 1, Jaspreet purchased a new home for $450,000 by making a down payment of $360,000 and financing the remaining $90,000 with a loan, secured by the residence, at 6 percent. In year 3, Jaspreet made interest only payments of $5,400 on the $90,000 loan. On January 1, year 3 when his home was valued at $450,000 Jaspreet executed two home equity loans (both secured by the home). The first (early in the day) was for $72,000 at an interest rate of 9 percent. The second home equity loan from a different bank (later in the day) was for $36,000 at an interest rate of 7 percent. In year 3, Jaspreet paid $6,480 of interest payments on the first home equity loan and $2,520 interest expense on the second. Jaspreet used the proceeds from the both home-equity loans for purposes unrelated to the home. What is the maximum amount of interest expense Jaspreet can deduct on these loans as home related interest expense?
$5,400.
$13,818.
$13,840.
$14,400.
Explanation / Answer
Jaspreet cab deduct $5400 as interest on loan used for purchase of the residential house is considered for tax deduction