Question

Rick and carol ryan, married taxpayers, took out a mortgage of $160,000 when purchasing their home ten years ago. in october of the current year, when the home had a fair market value of $200,000 and they owed $125,000 on the mortgage, the ryans took out a home equity loan for $110,000. they used the funds to purchase a sailboat to be used for recreational purposes. the sailboat does not qualify as a residence. what is the maximum amount of debt on which the ryans can deduct home equity interest

Answer 1

To solve for the debt that the Ryan's are able to deduct home equity interest from:

If Rick and Carol file jointly, they can deduct all of the interest paid on the first home loan. For the second home equity loan, they can deduct whe current market value from what they owe on the mortgage. $200,000 - $125,000 which is equal to $75,000 of interst that is deductible as home equity interest.