Janet and James purchased their personal residence 15 years ago for $302,500. For the current year, they have an $75,625 first mortgage on their home, on which they paid $3,781 in interest. They also have a home equity loan to pay for the children's college tuition secured by their home with a balance throughout the year of $123,750. They paid interest on the home equity loan of $12,375 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. It an amount is zero, enter "0". a. Qualified residence acquisition debt interest b. Qualified home equity debt interest
Janet and James purchased their personal residence 15 years ago for $302,500. For the current year, they have an $75,625 first mortgage on their home, on which they paid $3,781 in interest. They also have a home equity loan to pay for the children's college tuition secured by their home with a balance throughout the year of $123,750. They paid interest on the home equity loan of $12,375 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. It an amount is zero, enter "0". a. Qualified residence acquisition debt interest b. Qualified home equity debt interest
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 5-24 (Algorithmic)
Interest (LO 5.8)
Janet and James purchased their personal residence 15 years ago for $302,500. For the current
year, they have an $75,625 first mortgage on their home, on which they paid $3,781 in interest.
They also have a home equity loan to pay for the children's college tuition secured by their home
with a balance throughout the year of $123,750. They paid interest on the home equity loan of
$12,375 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.
It an amount is zero, enter "0".
a. Qualified residence acquisition debt interest
b. Qualified home equity debt interest
Expert Solution
Step 1
Interest Expense
• Deductible only to the extent paid and related to the current period ✓ Prepaid interest expense deduced in future period to which it relates
Home Mortgage Interest on acquisition indebtedness for 1st or 2nd home - Loan of upto $750,000 secured by the home and used to buy, build, or substantially improve the home (limit of $1 MM if loan was taken on or before Dec 15, 2017)
→ If home used partly for rent, need to use home as residence for the greater of 14 days or 10% of rental days
→ Points paid on loans to acquire residence deductible immediately.
→ Mortgage prepayment penalty also deductible as home mortgage interest
Note: Starting 2018, the following are not deductible:
Home equity loan interest (deductible only to the extent the loan proceeds were used to buy, build, or improve the home)
Mortgage insurance premiums
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