Patricia purchased a home on January 1, 2017, for $1,260,000 by making a down payment of $100,000 and financing the remaining $1,160,000 with a loan, secured by the residence, at 6 percent. From 2017 through 2020, Patricia made interest-only payments on the loaneach year in the amount of $69,600. What amount of the $69,600 interest expensethat Patricia paid during 2020 may she deduct as an itemized deduction? (Assume not married filing separately.)

Question

Quizplus · Accepted Answer

According to the mortgage interest deduction rules, a taxpayer may only deduct interest paid on up to $750,000 ($375,000 if married filing separately) of qualified residence loans. Since the loan amount of $1,160,000 exceeds the $750,000 limit, Patricia is only allowed to deduct the interest paid on $750,000 of the loan. Thus, the amount of interest she may deduct for 2020 is $60,000 ($750,000/$1,160,000 x $69,600). Therefore, the best choice is C: $60,000.

Patricia Purchased a Home on January 1, 2017, for $1,260,000