Income Tax Fundamentals 2016Janet and James purchased their personal residence 1
ID: 2479959 • Letter: I
Question
Income Tax Fundamentals 2016Janet and James purchased their personal residence 15 years ago for $407,500. For the current year, they have an $101,875 first mortgage on their home, on which they paid $5,094 in interest. They also have a home equity loan secured by their home with a balance throughout the year of $127,000. They paid interest on the home equity loan of $12,700 for the year. Calculate the amount of their deduction for interest paid on qualified residence acquisition debt and qualified home equity debt for the current year.
Explanation / Answer
Calculate the deduction amount for interest paid on qualified residence acquisition debt for the current year:
Acquisition debt taken out after Oct 13, 1987 to build, buy or substantially progress a qualified home.
Qualifying home acquisition debt = Cost of the home + Improvements for home acquisition debt
Interest paid on acquisition debt is eligible for deduction is $5,094.
Calculate the amount of their deduction for interest paid on qualified residence qualified home equity debt for the current year:
Taken a loan for reason other than to construct, purchase or significantly get better your home, it may be eligible as home equity debt.
Therefore, in this case interest paid on home equity debt ($12,700) is not eligible.