• Taxpayers purchased a home after December 15, 2017 which they use as their principal residence. Unless otherwise stated, they obtain a loan secured by their residence and use the proceeds to acquire the residence. What portion of the interest paid on such loan may Taxpayers deduct in the following situations:
  • (a) The purchase price and fair market value of the home is $350,000. Taxpayers obtained a mortgage for $250,000 of purchase price.
  • (b) The facts are the same as in (a), above, except that intro years Taxpayers have reduced the outstanding principal balance of the mortgage to $200,000 and the fair market value of the residence has increased to $400,000. In the later year, Taxpayers take out a second mortgage for $100,000 secured by their residence to add a fourth bedroom and a den to the residence.
  • (c) The facts are the same as in (b), above, except Taxpayers use their proceeds of the $100,000 mortgage to buy a Ferrari.
  • (d) The facts are the same as in (a), above, but additionally, towards the end of the current year when the outstanding principal balance of mortgage is $150,000, Taxpayers financial prospects improve dramatically and they purchase a luxury vacation residence in Florida for its fair market value of $800,000. They finance $550,000 of the purchase price with a note secured by a mortgage on the Florida house, use the house for 45 days a year, and elect to trade the residence as a qualified residence.
  • (e) The facts are the same as in (d), above, except that the mortgage on the Florida residence is $700,000.