Lewis and Laurie are married and jointly own a home valued at $240,000. They recently paid off the mortgage on their home. The couple borrowed money from the local credit union in January of 2020 How much interest may the couple deduct in each of the following alternative situations (assume they itemize deductions no matter the amount of interest)?

a. The couple borrows $40,000 and the loan is secured by their home. The credit union calls the loan a “home equity loan.” Lewis and Laurie use the loan proceeds for purposes unrelated to the home. The couple pays $1,600 interest on the loan during the year and the couple files a joint return.
b. The couple borrows $110,000 and the loan is secured by their home. The credit union calls the loan a “home equity loan.” Lewis and Laurie use the loan proceeds to add a room to their home.  The couple pays $5,200 interest on the loan during the year and the couple files a joint return.