Jared and Bess, married taxpayers, took out a mortgage on their home for $550,000 in 2002. In July of the current year, when the home has a fair market value of $700,000 and they owe $400,000 on the mortgage, Jared and Bess take out a home equity loan for $180,000. They use the funds to purchase a new car for personal use.
1. On a joint return, Jared and Bess can deduct (all, part or none?) of the interest on the first mortgage and interest on $___________ of the home equity loan.
2. What would your answer be if Jared and Bess file separate tax returns?
If married filing separately, Jared and Bess can deduct (all, part, or none?) of the interest on the first mortgage and interest on $_________ of the home equity loan.