Ted, who is single, owns a personal residence in the city. He also owns a condo near the ocean. He uses the condo as a vacation home. In March 2014, he borrowed $50,000 on a home equity loan and used the proceeds to acquire a luxury automobile. During 2014, he paid the following amounts of interest:

$\begin{array}{llr}
\text {-on his personal residence } &\$15,500\
\text { -on the condo } &6,200\
\text { -on the home equity loan } &4,800\
\text {-on credit card obligations } &1,700\
\end{array}$

What amount, if any, must Ted recognize as an AMT adjustment in 2014?
A) $0.
B) $4,800.
C) $6,200.
D) $11,000.
E) None of the above.

Question

Ted, who is single, owns a personal residence in the city. He also owns a condo near the ocean. He uses the condo as a vacation home. In March 2014, he borrowed $50,000 on a home equity loan and used the proceeds to acquire a luxury automobile. During 2014, he paid the following amounts of interest:

$\begin{array}{llr}
  \text {-on his personal residence  } &\$15,500\
 \text { -on the condo } &6,200\
 \text { -on the home equity loan } &4,800\
 \text {-on credit card obligations  } &1,700\
\end{array}$

What amount, if any, must Ted recognize as an AMT adjustment in 2014?
A) $0.
B) $4,800.
C) $6,200.
D) $11,000.
E) None of the above.

Quizplus · Accepted Answer

The interest on the home equity loan is not deductible for regular tax purposes because the proceeds were not used to buy, build, or improve the personal residence. However, the interest is still deductible for AMT purposes. Therefore, the AMT adjustment for the home equity loan interest is $4,800 ($50,000 x 9.6%). The interest on the mortgage for the personal residence and the condo is deductible for both regular tax and AMT purposes. The interest on the car loan is not deductible for either regular tax or AMT purposes.

Ted, Who Is Single, Owns a Personal Residence in the City