Several years ago, Magdelena purchased a new residence for $300,000. Currently, the outstanding mortgage on the residence is $260,000. The current fair market value of the home is $330,000. Magdelena wants to borrow a sizable sum of money to pay for the college education costs of her two children and believes the interest would be deductible if she takes out a home equity loan. For each of the independent situations below, determine the amount of the home equity loan on which Magdelena may deduct the interest as qualified residence interest.
a. Magdelena borrows $50,000 as a home equity loan.
b. Magdelena borrows $80,000 as a home equity loan.
c. Alternatively, assume the current fair market value of her residence is $410,000 and she borrows $110,000 as a home equity loan.
d. Alternatively, assume the current outstanding balance of the mortgage Magdelena incurred to purchase the home is $1,200,000, the home’s fair market value is $1,400,000, and she borrows $80,000 as a home equity loan.