On July 31 of the current year,Marjorie borrows $120,000 to purchase a new fishing boat.The loan is secured by her personal residence.On the date of the loan,the outstanding balance on the original debt incurred to purchase the residence is $300,000 and the FMV of the home is $450,000.What is the total amount of debt on which Marjorie can deduct interest in the current year?
A)$300,000
B)$400,000
C)$420,000
D)$450,000

Question

Quizplus · Accepted Answer

B)The loan for the boat is home equity indebtedness.Interest on $300,000 of acquisition indebtedness plus $100,000 of the home equity indebtedness is allowed.The home equity indebtedness is the lesser of home equity of $150,000 or $100,000.

On July 31 of the Current Year,Marjorie Borrows $120,000 to Purchase