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In Year 1 Jorge buys a home for $200,000, making a down payment of $40,000 and taking out a loan from the bank for $160,000

In Year 1 Jorge buys a home for $200,000, making a down payment of $40,000 and taking out a loan from the bank for $160,000 to finance the balance. In Year 5 the remaining loan balance is $130,000 while the home has increased in value to $300,000. Jorge refinances with a loan company that agrees to lend 80% of the value of the home, or $240,000, using $130,000 to repay the bank loan and providing $110,000 in cash. Jorge immediately spends $10,000 of the cash on a lavish vacation to the Bahamas, and $20,000 to pay down credit cards. How much of the $240,000 home equity loan balance is allowable for calculating the home mortgage interest deduction on Jorge's Year 5 tax return?

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