Mortgage interest. Dimitri owns a house that he uses as his principal residence. He originally bought the house in $2016,$ taking out $$900,000$ loan. Since that time, he has made payments on the loan so that the outstanding balance was $$800,000$ throughout the current year. He paid $$40,000$ interest on this loan this year $($i$.$e$.,$ at $5\%).$ On January $1$ of this year he took out an additional $$100,000$ loan, which he used to add a new bedroom to the house. The balance of that loan remained $$100,000$ throughout the year and he paid $$3,000$ interest on it $($i$.$e$.,$ at $3\%).$ What is the largest amount Dimitri can take as an itemized deduction for mortgage interest?

Mortgage interest. Dimitri owns a house that he uses as his principal residence. He originally bought the house in $2016,$ taking out $$900,000$ loan. Since that time, he has made payments on the loan so that the outstanding balance was $$800,000$ throughout the current year. He paid $$40,000$ interest on this loan this year $($i$.$e$.,$ at $5\%).$ On January $1$ of this year he took out an additional $$100,000$ loan, which he used to add a new bedroom to the house. The balance of that loan remained $$100,000$ throughout the year and he paid $$3,000$ interest on it $($i$.$e$.,$ at $3\%).$ What is the largest amount Dimitri can take as an itemized deduction for mortgage interest?

$$0$

$$37,500($i$.$e$.,$ $$750,000$ x $5\%)$

$$40,000$

$$43,000$