In year 1, Abby purchased a new home for $200,000 by making a down payment of$150,000 and financing the remaining $50,000 with a loan, secured by the residence, at 6 percent. As of January 1, year 4 the outstanding balance on the loan was $40,000. OnJanuary 1, year 4, when her home was worth $300,000, Abby refinanced the home bytaking out a $120,000 mortgage at 5 percent. With the loan proceeds, she paid off the$40,000 balance of the existing mortgage and used the remaining $80,000 for purposes unrelated to the home. During year 4, she made interest-only payments on the new loan of $6,000. What amount of the $6,000 interest expense on the new loan can Abby deduct in year 4 on the new mortgage as home related interest expense?

Question

Quizplus · Accepted Answer

The Answer of In year 1, Abby purchased a new home for $200,000 by making a down payment of$150,000 and financing the remaining $50,000 with a loan, secured by the residence, at 6 percent. As of January 1, year 4 the outstanding balance on the loan was $40,000. OnJanuary 1, year 4, when her home was worth $300,000, Abby refinanced the home bytaking out a $120,000 mortgage at 5 percent. With the loan proceeds, she paid off the$40,000 balance of the existing mortgage and used the remaining $80,000 for purposes unrelated to the home. During year 4, she made interest-only payments on the new loan of $6,000. What amount of the $6,000 interest expense on the new loan can Abby deduct in year 4 on the new mortgage as home related interest expense?

In Year 1, Abby Purchased a New Home for $200,000