Question

Jessica purchased a home on January 1, 2021, for $750,000 by making a down payment of $300,000 and financing the remaini...


Jessica purchased a home on January 1, 2021, for $750,000 by making a down payment of $300,000 and financing the remaining $450,000 with a loan, secured by the residence, at 6 percent. During 2021 and 2022, Jessica made interest-only payments on this loan of $27,000 (each year). On July 1, 2021, when her home was worth $750,000, Jessica borrowed an additional $187,500 secured by the home at an interest rate of 8 percent. During 2021, she made interest-only payments on the second loan in the amount of $7,500. During 2022, she made interest-only payments on the second loan in the amount of $15,000. What is the maximum amount of the $42,000 interest expense Jessica paid during 2022 that she may deduct as an itemized deduction if she used the proceeds of the second loan to finish the basement in her home and landscape her yard? (Assume not married filing separately.)

Answer

Here to understand the details of maximum deduction allowance which are made in the itemized deduction for mortgage interest of Jessica which was filling married jointly.  The maximum allowance for filling married jointly for the mortgage loan is $ 750000.  

Answer = $ 42000

Explanation

Here

Filling status is Married Jointly.  The maximum Allowance which are made for mortgage loan for Married filing jointly is $ 750000.  Hence it is deserve for maximum deduction allowance for the itemized deduction for the interest of mortgage loan applicable to Jessica in this regard as well .  Hence it is allowed for the Maximum of $ 42000 as interest of mortgage in itemized deduction which can be applicable in the taxation return of Jessica as well.  

Here

Loan Amount = $ 450000

Interest % = 6%

= $ 450000 * 6% 

= $ 27000

Addition Loan taken = $ 187500

Interest % = 8%

= $ 187500 * 8%

= $ 15000

= $ 27000 + $ 15000

= $ 42000

Hence it is eligible for the maximum itemized deduction for $ 42000 in the year 2021 as interest on Mortgage to Jessica as well.

 

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