In 2011, Abby Purchased a New Home for $200,000 by Making

question 16

Multiple Choice

In 2011, Abby purchased a new home for $200,000 by making a down payment of $150,000 and financing the remaining $50,000 with a loan, secured by the residence, at 6 percent. As of January 1, 2014, the outstanding balance on the loan was $40,000. On January 1, 2014, when her home was worth $300,000, Abby refinanced the home by taking out a $120,000 mortgage at 5 percent. With the loan proceeds, she paid off the $40,000 balance of the existing mortgage and used the remaining $80,000 for purposes unrelated to the home. During 2014, she made interest-only payments on the new loan of $6,000. What amount of the $6,000 interest expense on the new loan can Abby deduct in 2014 on the new mortgage as home related interest expense?

• A) $0
• B) $2,000
• C) $5,000
• D) $6,000

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