Sean bought a home in 2010 for $625,000 financing $550,000 of the purchase price with a 30 year mortgage. In 2018 when his existing mortgage balance was $520,000, he took out a home equity loan for $150,000. He used the proceeds to pay off credit card debt of $40,000 and purchase a car for $85,000; the balance he used to buy an engagement ring for his girlfriend. In 2018 he paid $30,000 interest on the mortgage and paid interest only of $6,600 on the home equity loan. What is his deduction for qualified residential interest for 2018?

Question

Quizplus · Accepted Answer

Sean can only deduct the interest on the original mortgage, which is $30,000, as the home equity loan was not used to buy, build, or substantially improve the home.

Sean Bought a Home in 2010 for $625,000 Financing $550,000