Jacoby purchases a home for $1,500,000 by making a $150,000 down payment and by borrowing the remaining $1,350,000 with a loan secured by the home.Jacoby can deduct interest expense on $1,100,000 of the loan principal.

Question

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Interest expense on loans used to purchase, build or improve a qualified residence is generally deductible, subject to certain limitations. In this case, Jacoby can deduct interest expense on $1,100,000 of the loan principal because that is the portion of the loan used to purchase the home. The remaining $250,000 of the loan may not be deductible if it was used for other purposes.

Jacoby Purchases a Home for $1,500,000 by Making a $150,000