Question

In 2018, Bogart paid $20,000 of interest on a mortgage on his home (Bogart borrowed $600,000 in 2015 to buy this primary residence and it is currently worth $1,000,000). In 2018 Bogart also paid $12,000 of interest on a $150,000 home equity loan on his home, and $10,000 of interest on a mortgage on his vacation home (loan of $300,000; home purchased for $400,000 in 2016). How much interest expense can Bogart deduct as an itemized deduction in 2018?

Answer 1

Ans.

As Per the Provisions of the United States tax law, Itemized deductions are eligible expenses that can be claimed by Individual Taxpayer on their Federal income tax returns.

Itemized Deductions for the year 2018

Standard deduction for the year 2018 for the Single individual taxpayer is $12000/-. Hence Individual taxpayer can claim Standard deduction of $12000/-

Further As per the provisions of the law an Individual can deduct the mortgage interest paid by him. But deduction is capped at the interest up to $750000 of debt on his first and second homes combined. He can also claim Investment interest expense paid on loan taken by him for investment.

Therefore as per the above provisions the answer for this question will be as under:-

Particulars	Allowability of Exps.	Amount($)
Home mortgaged Interest	Allowed	$20000
Home Equity Loan Interest	Allowed	$12000
Mortgaged Vacation home Interest	Allowed	$10000
Total Interest		$42000
Maximum Allowed Exp. as itermized deduction [42000/(600000+300000+150000)]*750000		$30000
Standard Deduction in 2018		$12000
whichever is More Bogart can claim		$30000