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 $270,000. Jorge refinances with a loan company that agrees to lend 125% of the value of the home, or $337,500, using $130,000 to repay the bank loan and providing $207,500 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 $337,500 home equity loan balance is allowable for calculating the home mortgage interest deduction on Jorges Year 5 tax return?

$270,000 $240,000 $230,000 $220,000