Describe the tax treatment of the interest paid by cash-basis taxpayers in each of the following situations:

a. J.R. and Suellen, a married couple filing a joint return, purchased a principal residence in 2021 for $1.4 million, paying $225,000 in cash and financing the balance with a mortgage. How might your answer change if J.R. and Suellen purchased the property as single individuals, and each purchased half the home as tenants in common?

b. Tammy takes out a loan of $100,000 on February 15, 2016, and uses the proceeds to buy a residential building lot, which serves as security for the debt. On January 5, 2017, Tammy begins construction of a house on the lot. She completes construction on December 28, 2017 (having spent $300,000, excluding the lot), and moves into the house as her principal residence on New Years Eve of that year. On March 1, 2019, Tammy obtains a mortgage loan for $350,000, secured by the residence. The lender pays off the initial $100,000 debt and disburses the remaining $250,000 to Tammy.

c. Dax and Joyce purchased their principal residence on July 1, 2015, taking out an interest-only 30-year $900,000 mortgage. In early 2019, they decided it was time to refinance to take advantage of lower interest rates. Since the interest rate was so low and their home had increased in value, their lender encouraged them to take out a larger mortgage than was needed to pay off the old one, the balance of which was $800,000 at the time. They signed the new $950,000 15-year fixed rate mortgage on March 14. They used the $150,000 in excess proceeds to purchase a 40-foot used yacht, which includes sleeping, cooking, and toilet facilities.

d. Jim Bob bought a home in 1995, paying a total of $225,000 and taking out a mortgage for $200,000. Last year, when the balance of the mortgage was $175,000, he refinanced the loan, and since the value of the home had increased to $450,000, he took out some extra cash, making the new loan amount $375,000. Jim Bob used $100,000 of the extra proceeds of the loan to remodel the kitchen and add a bathroom to the home, and the other $100,000 was spent on a cruise around the world with his boss. What are the implications for deducting the interest on his new mortgage? Assume, that instead of the cruise, Jim Bob bought a cabin in the woods. Finally, how much interest expense can Jim Bob deduct for AMT purposes?