Joseph and Sandra,married taxpayers,took out a mortgage on their home for $350,000 in 1989.In May of this year,when the home had a fair market value of $450,000 and they owed $250,000 on the mortgage,they took out a home equity loan for $220,000.They used the funds to purchase a single engine airplane to be used for recreational travel purposes.What is the maximum amount of debt on which they can deduct home equity interest?

Question

Quizplus · Accepted Answer

Under the Tax Cuts and Jobs Act (TCJA) passed in 2017, taxpayers can only deduct home equity interest on debt that is used to "buy, build, or substantially improve the taxpayer's home that secures the loan." The home equity loan used to purchase the airplane does not meet this criteria as it was not used to improve the home. Therefore, the maximum amount of debt on which they can deduct home equity interest is $100,000, which is the limit for "qualified residence loans" (i.e. mortgages and home equity loans used for home improvements).

Joseph and Sandra,married Taxpayers,took Out a Mortgage on Their Home