Please help me answer the following questions in correspondence with 2016 tax la

Question

Please help me answer the following questions in correspondence with 2016 tax laws:

1) John's original acquisition indebtedness on his principle residence was $500,000. Over the past two years he reduced the outstanding debt to $400,000. He subsequently decides he wants to refinance the mortgage to reduce the interest rate and to increase the mortgage to $550,000. He needs the funds to fund his daughters college expenses. The fair market value of the home is $1.0 million. How much of the new debt will be qualified debt for purposes of the home mortgage interest deduction?

a.) $100,000

b.) $550,000

c.) $500,000

d.) $400,000

2) John has mortgage on his principle residence of $500,000 and paid interest on the mortgage of $25,000 during 2015. The mortgage qualifies as acquisition indebtedness. John also, has two vacation homes with mortgages of $200,000 and $250,000 in which he paid $10,000 and $15,000 interest, respectively. Both mortgages on the vacation properties are qualified residential interest. What is the total amount of home interest deduction?

a.) $40,000

b.) $25,000

c.) $50,000

d.) $35,000

e.) None of the above

3) Select whether the property would be deemed Personal, Significant Rental Use or Rental property in each of the following scenarios.

Rental of 50 days, Personal use if 10 days = ?

Rental of 200 days, Personal use of 19 days = ?

Rented for 10 days, Peronal use 30 days = ?

Rental for 50 days, Personal use of 50 days = ?

Rental for 14 days, Personal use 350 days = ?

Rental for 20 days, Personal use of 15 days = ?

4.) Joe owns a vacation house but rents it during the College football season for 4 weekends (12 days). He gets $2,000 per weekend. Joe uses the home at other times for about 50 days during the year. Expenses are $10,000, not including interest and taxes. How much income must Joe report from the property?

a.) $1,500

b.) $8,000

c.) $0

d.) None of the above

Rental of 50 days, Personal use if 10 days = ?

Rental of 200 days, Personal use of 19 days = ?

Rented for 10 days, Peronal use 30 days = ?

Rental for 50 days, Personal use of 50 days = ?

Rental for 14 days, Personal use 350 days = ?

Rental for 20 days, Personal use of 15 days = ?

4.) Joe owns a vacation house but rents it during the College football season for 4 weekends (12 days). He gets $2,000 per weekend. Joe uses the home at other times for about 50 days during the year. Expenses are $10,000, not including interest and taxes. How much income must Joe report from the property?

a.) $1,500

b.) $8,000

c.) $0

d.) None of the above

Explanation / Answer

Taxpayer acquires a qualified residence for $500,000. The $500,000 debt is acquisition indebtedness. After the taxpayer has paid the mortgage down to $400,000 and the home is worth $1000,000, the taxpayer refinances with a new $550,000 mortgage. Only $400,000 of this new debt is acquisition indebtedness. However, an additional $100,000 may qualify as home equity indebtedness for a total of $500,000.

How much debt can the taxpayer use to compute the deductible home mortgage interest? Only $500,000, not $550,000.

If the remaining mortgage proceeds of $100,000 were not used for business or investment, then all the interest attributable to the $100,000 is personal interest. Personal interest is not deductible.In this case the proceeds will be used for daughter college expenses, which is peronal in nature. So the qualifying amount is $400000

Answer is $400000

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