Cathy buys a house (her principal residence) for $2,000,000, paying $500,000 down and borrowing the other $1,500,000 at 5% interest. If her interest expense for the year is $75,000, how much will her deduction for interest expenses be?

Question

Quizplus · Accepted Answer

Only interest on $1,000,000 of acquisition indebtedness is deductible, but an additional $100,000 of the initial mortgage can be treated as home equity debt. the deductible interest is $75,000 × ($1,100,000/$1,500,000) =
$55,000.

Cathy Buys a House (Her Principal Residence) for $2,000,000, Paying