David, a single taxpayer, took out a mortgage on his home for $300,000 nine years ago. In August of this year, when the home had a fair market value of $550,000 and he owed $225,000 on the mortgage, he took out a home equity loan for $350,000. David used the funds to purchase a yacht to be used for recreational purposes. What is the maximum amount of debt on which he can deduct home equity interest?

Question

Quizplus · Accepted Answer

Under the Tax Cuts and Jobs Act of 2017, the maximum amount of debt on which a taxpayer can deduct home equity interest is $100,000. This limit applies to the combined total of any mortgage and home equity debt used to purchase, build, or improve the taxpayer's home. In this case, David has $225,000 in mortgage debt and $350,000 in home equity debt, for a total of $575,000. However, since the home equity debt was used to purchase a yacht for recreational purposes, it does not qualify for the home mortgage interest deduction. Therefore, the maximum amount of debt on which David can deduct home equity interest is the remaining $100,000 limit.

David, a Single Taxpayer, Took Out a Mortgage on His