Ek my work mode : This shows whet is correct or incorrect for the work you heve

Question

Ek my work mode : This shows whet is correct or incorrect for the work you heve comple Required information 2of 3 The following information applies to the questions displayed below] Javier and Anita Sanchez purchased a home on January 1 of year 1 for $500,000 by paying $200,000 down and borrowing the remaining $300,000 with a 7 percent loan secured by the home. The loan requires interest-only payments for the first five years. The Sanchezes would itemize deductions even if they did not have any deductible interest On January 1, the Sanchezes also borrowed money on a second loan secured by the home for $75000 The interest rate on the loan is 8 percent and the Sanchezes make interest-only payments in year 1 on the second loan (Do not round intermediate celculetions Round your final answers to the nearest whole doller amount) b. Assume the original facts and that the Sanchezes use the $75,000 loan proceeds for an extended family vacation. What is the maximum amount of interest expense (on both loans combined) they are allowed to deduct in year 1? Answer is complete but not entirely correct. 6,000 8 3 4 5 6 7 8 9 0

Explanation / Answer

b. $27000 ($21000 + $6000), determined as follows :

The Sanchezes can deduct the acquisition debt which is the first loan of interest $21000 ($300000×75%) . The second loan is qualified as a home-equity loan because it was not been used for the improvement of the home. Therefore, the home-equity indebtedness is limited to $75000 which is lesser of :

(1) FMV of home - Acquisition debt ($500000 - $300000 = $200000 ).

(2) $100000 home equity indebtedness ($50000 for married filling separately). The Sanchezes home costs of $500000 where $200000 was paid as down payment plus $300000 the acquisition loan taken. Thus, the Sanchezes can deduct interest on up to $100000 because their second loan is of $75000 is below the limit, so they can deduct the full $6000 ($75000×8%) as interest on second loan.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.