Jared and Bess, married taxpayers, took out a mortgage on their home for $550,000 in 2002. In July of the current year, when the home has a fair market value of $700,000 and they owe $400,000 on the mortgage, Jared and Bess take out a home equity loan for $180,000. They use the funds to purchase a new car for personal use.

a. On a joint return, Jared and Bess can deduct ( all, part or none?) of the interest on the first mortgage and interest on $___________ of the home equity loan.

b. What would your answer be if Jared and Bess file separate tax returns?

If married filing separately, Jared and Bess can deduct ( all, part, or none?) of the interest on the first mortgage and interest on $_________ of the home equity loan.