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    Itemized deductions: which interest paid is deductible

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    8. Sharon sold her home on February 14th and purchased a new home one month later. The home cost $900,000 and was funded by obtaining an interest only mortgage from Chase for $900,000. She paid $9,000 of points to Chase to obtain this mortgage. On July 1st she refinanced the loan with Bank of America to obtain a lower interest rate on a 30 year fully amortizable loan. She paid another $9,000 of points to obtain this mortgage. On November 1st she obtained an equity line of credit on the home from Wells Fargo Bank for $75,000. She immediately advanced the entire amount to pay off her credit cards.

    She had the following interest expense for the year: $6,100 for old home loan, $26,250 to Chase, $31,500 to Bank of America, $1,125 to Wells Fargo Bank, $12,400 on personal credit cards, $3,000 to stock broker for interest on funds used to purchase municipal bonds and $6,600 on a copier used in her business (Schedule C). What is the total amount of interest and points that will be included in her itemized deductions on Schedule A?

    a. $64,975
    b. $74,125
    c. $85,975
    d. $98,375
    e. $104,975

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    Solution Preview

    The amounts allowable as itemized deductions are:

    $9,000 points on the Chase loan
    $150 amortization of points on the BofA loan calculated at 9000 / 30 yr / 2 for half year
    $6,100 old home loan
    $26,250 Chase
    $31,500 BofA
    $1,125 Wells Fargo. See note 1
    -0- Personal credit cards. ...

    Solution Summary

    The solution explains which interest paid amounts are deductible together with notes of explanation for better understanding.