Question

Buyers purchased a house for $150,000. Ten years later, the house gained in value, and they refinanced borrowed $100,000. Which of the following most accurately reflects the likely tax implications of the new

A. The interest is deductible on a loan of this type for purchase or refinance of a primary residence.
B. Interest deduction limitations are determined by personal tax bracket
C. They may deduct only one-half of the difference between the original loan and the refinance as a deduction.
D. The interest on the differenge between the original loan and the refinance is not an income tax deduction.

Answer 1

The likely tax implications of refinancing a house after gaining value include: interest being deductible on a loan of this type for a primary residence, deduction limitations determined by personal tax bracket, and the interest on the difference between the original loan and the refinance not being tax deductible.

Step-by-step explanation:

When buyers purchased a house for $150,000 and later refinanced for $100,000, the likely tax implications are as follows:

1. The interest is deductible on a loan of this type for purchase or refinance of a primary residence. This means that the interest paid on the refinanced loan can be deducted from the borrower's income when filing for taxes.
2. Interest deduction limitations are determined by personal tax bracket. The amount that can be deducted as interest depends on the individual's tax bracket. Higher tax brackets may have certain limitations on the deduction.
3. The interest on the difference between the original loan and the refinance is not an income tax deduction. In this case, the difference between the original loan amount and the refinance is $50,000, and the interest on this difference cannot be deducted as an income tax deduction.