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Income Tax - Deduction

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In 2003, Roland, who is single, purchased a personal residence for $340,000 and took out a mortgage of $200,000 on the property. In May of the current year, when the residence had a fair market value of $440,000 and Roland owed $140,000 on the mortgage, he took out a home equity loan for $220,000. He used the funds to purchase a recreational vehicle, which he uses 100% for personal use. What is the maximum amount on which Roland can deduct home equity interest?

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Solution Summary

This solution explains the maximum amount on which Roland can deduct home equity interest. References are also provided.

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In this case, he has a personal residence and a home equity loan, which would surpass the RV for deductibility. The mortgage interest deduction is limited to the base amount of the mortgages. The mortgages have to be under $1 million, and in this case, they are. We have 340,000 + 220,000. He paid 340,000 and took a mortgage for 200,000 of that amount. The FMV isn't a ...

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