Patricia purchased a home on January 1, 2017, for $1,440,000 by making a down payment of $100,000 and financing the remaining $1,340,000 with a loan, secured by the residence, at 6 percent. From 2017 through 2020, Patricia made interest-only payments on the loaneach year in the amount of $80,400. What amount of the $80,400 interest expensethat Patricia paid during 2020 may she deduct as an itemized deduction? (Assume not married filing separately.)

Question

Quizplus · Accepted Answer

Patricia may deduct the interest expense that she paid during 2020, up to a limit of $750,000 ($1,000,000 if the loan was incurred before December 16, 2017), since it relates to a loan that is secured by her residence and she uses the loan proceeds to buy, build, or substantially improve her residence. Since Patricia made at least $80,400 in interest-only payments on the loan in 2020, she may deduct the full $80,400 as an itemized deduction on her tax return. Therefore, the correct answer is (C) $60,000.

Patricia Purchased a Home on January 1, 2017, for $1,440,000