At the end of 2019, Mark owes $250,000 on the mortgage related to the 2016 purchase of his residence. When his daughter went to college in the fall of 2019, he borrowed $20,000 through a home equity loan on his house to help pay for her education. The interest expense on the main mortgage is $15,000, and the interest expense on the home equity loan is $1,500. How much of the interest is deductible as an itemized deduction?

Answer:

  $15,000

Step-by-step explanation:

The $1500 interest on a home equity loan used for purposes other than home improvement is not deductible with other home loan interest as an itemized deduction.

However, the interest on a loan for qualified educational expenses may be considered an adjustment to income, within limits.

Only the $15,000 main mortgage interest can be an itemized deduction.

Final answer:

The total possible mortgage interest deduction for Mark in this scenario is $16,500. However, the actual amount he can deduct depends on his adjusted gross income and whether his itemized deductions exceed the standard deduction.

Explanation:

Under US tax law, taxpayers can deduct the interest on home mortgages and home equity loans, subject to some limitations. The interest expense on the main mortgage ($15,000) and the interest expense on the home equity loan ($1,500) can be combined for a total interest deduction of $16,500. However, the deduction may not be the full amount if there are other factors that would limit the amount of itemized deductions that Mark can claim. This can depend on his adjusted gross income and whether the total of his itemized deductions exceeds the standard deduction. It's also worth noting that the tax benefits of home ownership, such as the mortgage interest deduction, is a key reason why many people choose to buy rather than rent, as it can lead to significant financial savings.

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