Question

Janet and James purchased their personal residence 15 years ago for $300,000. For the current year, they have an $80,000 first mortgage on their home, on which they paid $5,750 in interest. They also have a home equity loan to pay for the children’s college tuition secured by their home with a balance throughout the year of $150,000. They paid interest on the home equity loan of $9,000 for the year. Calculate the amount of their deduction for interest paid on qualified residence acquisition debt and qualified home equity debt for the current year. If your answer is zero, enter "0".a. Qualified residence acquisition debt interest $b. Qualified home equity debt interest $

Answer 1

Answer:

a. Qualified residence acquisition debt interest

• $5,750

b. Qualified home equity debt interest

• $0

Explanation:

Qualified residence interest deduction includes all interests on debt related to  building, acquiring or improving your primary residence.

Before 2018, any interests on home equity loans were deductible, but not anymore. Only those interests on equity loans used to improve your existing home (build or remodel) qualify as deductible home equity debt interest. If the debt was taken before 2018, you can still deduct the interests even if it was used for paying college tuition, but since we are not given any dates here, we must assume it was a new debt.