Question

Enya has a first mortgage and a smaller home equity loan. enya took out the home equity loan on january 15, 2022. it was not used to build, buy, or improve her home. the equity loan proceeds were used to purchase a new car and pay off credit cards. during the year, she paid $6,350 in interest on her first mortgage and $1,490 in interest on the home equity loan. she is not allowed to deduct the home equity loan interest on her federal return. how much interest can be deducted on her california return?

a. $0
b. $1,490
c. $6,350
d. $7,840

Answer 1

Enya can deduct a total of $7,840 on her California return, which includes $6,350 from her first mortgage and $1,490 from her home equity loan, as California allows the deduction of home equity interest regardless of its use.

Step-by-step explanation:

The correct answer to the question of how much interest Enya can deduct on her California return is $7,840. This amount represents the total interest paid on both her first mortgage and home equity loan. In California, unlike the federal tax code, the purpose for which a home equity loan is used does not affect the deductibility of the interest paid.

Therefore, even though the home equity loan was not used for building, buying, or improving her home, Enya can still deduct the interest paid on this loan for her state return. The interest paid on the first mortgage is also deductible. To calculate the total deductible interest, you simply add the interest from the first mortgage ($6,350) and the interest from the home equity loan ($1,490), which gives you the total deduction amount of $7,840.