Rick and Carol Ryan,married taxpayers,took out a mortgage of $160,000 when purchasing their home ten years ago.In October of the current year,when the home had a fair market value of $200,000 and they owed $125,000 on the mortgage,the Ryans took out a home equity loan for $110,000.They used the funds to purchase a sailboat to be used for recreational purposes.The sailboat does not qualify as a residence.What is the maximum amount of debt on which the Ryans can deduct home equity interest?

Question

Quizplus · Accepted Answer

Interest is deductible only on the portion of a home equity loan that does not exceed the lesser of:
-The fair market value of the residence,reduced by the acquisition indebtedness ($200,000 FMV - $125,000 acquisition indebtedness = $75,000).
-$100,000 ($50,000 for married persons filing separate returns).
On a joint return,Rick and Carol can deduct all of the interest on the first mortgage since it is acquisition indebtedness.Of the $110,000 home equity loan,interest on $75,000 is deductible as home equity interest.

Rick and Carol Ryan,married Taxpayers,took Out a Mortgage of $160,000