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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

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.

\$2.49