Equity flows, home's embrace, a debt's warm sun ignites the space. Interest whispers, sixteen grand, deduction's scales, ten hold the sand. Unless income's tide rolls too high, ten thousand blooms beneath the sky.
The correct answer is b. $10,000. Here's why:
Tax rules for home equity debt interest:
- Interest on home equity debt used for acquiring, constructing, or substantially improving a taxpayer's primary residence is generally deductible, up to a limit of $100,000 of the loan amount.
- However, this deduction is phased out for single filers with adjusted gross income (AGI) exceeding $273,000 in 2023.
Applying the rules to Carol's situation:
- Carol qualifies for the deduction as she used the home equity debt on her primary residence.
- However, the loan amount ($350,000) exceeds the limit for full deductibility ($100,000).
- Carol's income information is not provided, so we cannot determine if the phase-out applies.
Therefore, assuming Carol's income doesn't trigger the phase-out, she can deduct the lesser of the interest paid ($16,000) and the limit for full deductibility ($10,000).
Explanation of other options:
- a. $0: This would only be true if the phase-out completely eliminates the deduction due to high income, but we don't have enough information.
- c. $16,000: This exceeds the limit for full deductibility and Carol's income information is not provided to determine the phase-out.
- d. $125,000: This is completely incorrect and doesn't relate to any limit or Carol's specific situation.
- e. None of the above: While technically true, "b. $10,000" is the most specific and accurate answer.