Darrin owns a house with a FMV of $400,000 and acquisition indebtedness (ﬁrst mortgage) of $250,000. He took out a home equity loan of $120,000 on the house, and used the proceeds to buy a yacht. If his interest on the home equity loan this year is $9,000, how much of the interest from the home equity loan will be deductible?

Question

Quizplus · Accepted Answer

Home mortgage interest is deductible only on the interest on the lesser of (a) the amount of equity in the home (fair market value minus acquisition indebtedness) or (b) $100,000. the equity in the home is $150,000. the deductible home equity loan interest is therefore $9,000 × ($100,000/$120,000) = $7,500.

Darrin Owns a House with a FMV of $400,000 and Acquisition