In year 1, Kris purchased a new home for $420,000 by making a down payment of $315,000 and financing the remaining $105,000 with a loan, secured by the residence, at 6 percent. As of January 1, year 4, the outstanding balance on the loan was $84,000. On January 1, year 4, when his home was worth $504,000, Kris refinanced the home by taking out a $252,000 mortgage at 5 percent. With the loan proceeds, he paid off the $84,000 balance of the existing mortgage and used the remainder for purposes unrelated to the home. During year 4, he made interest only payments on the new loan of $12,600. What amount of the $12,600 interest expense on the new loan can Kris deduct in year 4 on the new mortgage as home related interest expense?

Multiple Choice

$12,600.

$9,200.

$1,050.

$7,350.