Purchase Solution

Mortgage Interest Deductibility

Not what you're looking for?

Ask Custom Question

During the current year, Richard and Alisha, a married couple who use the cash method of accounting, purchased a principal residence for $320,000. They paid $40,000 down and financed the remaining $280,000 of the purchase price with a 30-year mortgage. At the closing, they also paid $500 for an appraisal, $500 for a title search, and 1.5 points representing additional interest over the term of the loan.

At the end of the year, Richard and Alisha received a statement from the mortgage company indicating that $12,000 of their total monthly payments made during the year represents interest and $1,000 is a reduction of the principal balance.

a. What is the total amount Richard and Alisha may deduct in the current year arising from the purchase and ownership of their home?
b. What is the treatment of the other items that are not deductible?

Purchase this Solution
Solution Summary

This solution is a calculation of the mortgage interest that is deductible on Schedule A of Form 1040: Individual Inco,e tax Return.

Solution Preview

A. Richard and Alisha will deduct $11,000 on schedule A of form 1040. The ...

Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance

This quiz test introductory finance topics.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

View More Free Quizzes
Related BrainMass Solutions

  • Sue owns a home in Arizona and in New York. She spends winte

    All of the properties have mortgages on which she pays interest. What are the limits, if any, on the deductibility of the mortgage interest? Is the deduction for AGI or from AGI?

  • Rate of return for mortgage vs investments; debt vs savings

    If an individual is trying to pay down or pay off a mortgage, the risk is less paying directly on the mortgage. The debt balance would not be subject to market fluctuations, failure of bond issuers, interest rate changes, etc. 2.

  • Income Tax - Deduction

    , your mortgage interest starts to get phased out.

  • A local ophthalmologist's advertising campaign included a ce

    All of the properties have mortgages on which Julia pays interest. What are the limitations on Julia's mortgage interest deduction? What strategy should Julia consider to maximize her mortgage interest deduction? 3.

  • Taxpayer's Marginal Tax Rate (MTR)

    Assume that mortgage interest is deductible both on his federal and state income tax, and that state income taxes are deductible on the federal income tax; also assume that he itemizes deductions.

  • Current Account Deficit run by the U.S.

    This is probably its biggest single distortion because the deductibility of mortgage interest provides a strong incentive to borrow. In fact, half the proceeds is spent on consumption, thereby boosting the trade deficit.

  • Mortgage interest & donations in Japan, basis of accounting

    Case #2 Since the property purchased by Reverend B is identical, I would advise the Reverend that the home mortgage interest deductibility also depends on whether the house purchased is used as a primary, secondary or other residences.

  • Corrective taxes and pollution

    Chapter 12 The Tax Reform Act of 1986 eliminated the deductibility of interest payments on consumer debt (mostly credit cards and auto loans) but maintained the deductibility of interest payments on mortgages and home equity loans.

  • Capital Structure, Equity Financing and Financial Leverage

    The WACC decreases because of the tax deductibility of debt payments. The tax deductibility means that interest payments help reduce the amount of tax paid by the company. C.

  • Creditors prefer low debt ratios

    Second, the cost of debt financing - interest expense - is tax deductible while the cost of equity financing is not. The deductibility of the cost of debt decreases the income tax expense of the company compared to if it used equity financing.

View More Related Solutions