3. Lewis and Laurie are married and jointly own a home valued at $342,500. They

Question

3. Lewis and Laurie are married and jointly own a home valued at $342,500. 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. Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

a. The couple borrows $52,000, and the loan is secured by their home. The couple pays $2,080 interest on the loan during the year, and the couple files a joint return.

Amount of Interest: $___________

b. The couple borrows $11,000 unsecured from the credit union. The couple pays $990 interest on the loan during the year, and the couple files a joint return.

Amount of Interest: $___________

c. The couple borrows $140,000, and the loan is secured by their home. The couple pays $4,060 interest on the loan during the year, and the couple files a joint return.

Amount of Interest: $___________

Explanation / Answer

In case of loan secured by home taken for personal use, interest paid on that loan can be deducted in the following situations

Incase of loan taken for personal use not related to home , the interest paid up to the loan amount of 100,000 is deductable in case of couple filing return jointly. The limit is 50,000 if they are filing separately

(a). The couple borrows $52,000, and the loan is secured by their home. The couple pays $2,080 interest on the loan during the year, and the couple files a joint return.

The whole amount of $2080 is deductable because of loan amount is within the limit 100,000 and they are filing jointly

(B).The couple borrows $11,000 unsecured from the credit union. The couple pays $990 interest on the loan during the year, and the couple files a joint return.

Amount deductable is $0. Because the loan unsecured.

(C) The couple borrows $140,000, and the loan is secured by their home. The couple pays $4,060 interest on the loan during the year, and the couple files a joint return.

$2900 amount of interest is deductable. If the loan amount exceeds the 100,000 limit (joint filing) , then proportionate amount of interest is deductable. $4060* 100,000/140000 =$2900

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