Question

Lewis and Laurie are married and jointly own a home valued at $387,500. They recently paid off the mortgage on their home. In need of cash for personal purposes unrelated to the home, the couple borrowed money from the local credit union. How much interest may the couple deduct in each of the following alternative situations? (Assume they itemize deductions no matter the amount of interest.) (Leave no answer blank. Enter zero if applicable.)

The couple borrows $46,750, and the loan is secured by their home. The couple pays $1,870 interest on the loan during the year, and the couple files a joint return.

The couple borrows $15,400 unsecured from the credit union. The couple pays $1,386 interest on the loan during the year, and the couple files a joint return

The couple borrows $175,000, and the loan is secured by their home. The couple pays $5,600 interest on the loan during the year, and the couple files a joint return.

The couple borrows $175,000, and the loan is secured by their home. The couple pays $5,600 interest on the loan during the year, and the couple files separate tax returns. Determine the interest deductible by Lewis only.

Answer 1

1. The couple borrows $46,750, and the loan is secured by their home. The couple pays $1,870 interest on the loan during the year, and the couple files a joint return.

Ans:- $1,870 , the couple would be able to o deduct all of the interest as home equity indebtedness(limited to $100,000).

2. The couple borrows $15,400 unsecured from the credit union. The couple pays $1,386 interest on the loan during the year, and the couple files a joint return

Ans:- $0, Because the loan is for personal purposes and is not secured by the home, the interest is nondeductible personal interest.

3. The couple borrows $175,000, and the loan is secured by their home. The couple pays $5,600 interest on the loan during the year, and the couple files a joint return.

Ans:-$3,200, While the loan is secured by the home, interest is deductible on only $ 100,000 of principal. Consequently, the deductible interest is computed as follows: $5,600*$100,000/$175,000.

4. The couple borrows $175,000, and the loan is secured by their home. The couple pays $5,600 interest on the loan during the year, and the couple files separate tax returns. Determine the interest deductible by Lewis only.

Ans:- $2,545 (rounded). This is exactly half of the full amount of deductible interest if the couple had filed jointly. The limit on qualifying home equity indebtedness for married persons filing separately is $50,000. Because Lewis and Laurie jointly own the home (presumably 50-50), each spouse is treated as having paid $2,800 of interest. Consequently, Lewis’s deductible interest is $2,800 × $50,000/55,000.