In Year One, George Bailey purchased his Bedford Falls residence in the United States for $350,000. He paid $50,000 cash and took out a $300,000 mortgage from Potter Bank. As of January 1, Year Ten, the principal balance on the mortgage was $250,000, and the home was worth $500,000.

On January 1, Year Ten, George borrowed $200,000 from Bailey Brothers Building & Loan, an unrelated party. The loan was secured by a second lien on Georges 582residence. George used $50,000 of the loan proceeds to remodel the residence. He used the remainder of the loan proceeds for personal purposes, including a vacation.

In Year Ten, George paid a total of $45,000 in interest: $25,000 on the Potter Bank loan and $20,000 on the Bailey Brothers loan.

(a) To what extent can George deduct the interest payments assuming Year Ten is a year prior to 2018?

(b) How does the answer to (a) change if Year Ten is a year after 2017 but before 2026?