In Year 1, Jaspreet Purchased a New Home for $500,000

In year 1, Jaspreet purchased a new home for $500,000 by making a down payment of $400,000 and financing the remaining $100,000 with a loan, secured by the residence, at 6 percent. In year 3, Jaspreet made interest only payments of $6,000 on the $100,000 loan. On January 1, year 3 when his home was valued at $500,000 Jaspreet executed two home equity loans (both secured by the home) . The first (early in the day) was for $80,000 at an interest rate of 9 percent. The second home equity loan from a different bank (later in the day) was for $40,000 at an interest rate of 7 percent. In year 3, Jaspreet paid $7,200 of interest payments on the first home equity loan and $2,800 interest expense on the second. Jaspreet used the proceeds from the both home-equity loans for purposes unrelated to the home. What is the maximum amount of interest expense Jaspreet can deduct on these loans as home related interest expense?

A) $6,000.
B) $14,545.
C) $14,600.
D) $16,000.