Question

a) At the end of the current year, the taxpayer has a home-equity loan of $90,000. The value of the residence is $286,000, while the amount of acquisition indebtedness on the home is $125,000. Interest on how much of the home equity loan is indebtedness on the deductible?

b) A taxpayer donates a capital asset (basis of $16,000, value of $12,000) to a public charity on October 29th, 2014. She had acquired the property on December 2013. What is the value of the contribution?

Answer 1

a) The Internal Revenue Service announced that in many cases taxpayers will be able to continue deducting interest paid on home equity loans.Prior to the Tax Cuts and Jobs Act, taxpayers were able to deduct interest on up to $1 million in mortgage debt and also up to $100,000 of home equity debt. Under the new law, taxpayers are now limited to $750,000 of home acquisition debt with no separate carve out for home equity debt. However, tax filers with mortgage debt taken out prior to December 14, 2017, are still allowed to deduct interest on up to $1 million in mortgage debt (not inclusive of home equity debt). Therefore No deduction on account of Interest on Home Equity Loan.

b) If a taxpayer contribute property owned for more than one year, the value of the deduction is normally equal to the property's fair market value. One have an advantage when he contribute appreciated property because they get a deduction for the full fair-market value of the property. He will not be taxed on any of the appreciation, in the given case the asset is a real property and the ownership is for less than 1 year - The amount which can be deducted for a contribution of ordinary income property is its fair market value minus the amount that would be ordinary income or short-term capital gain if sold the property for its fair market value. Generally, this rule limits the deduction to your basis in the property. Therefore the contribution value will be limited to $12000.