U.S. Tax CodeIn 2018, Sarah paid interest from a student loan (Debt) from Sac State University where she attended classes on a full time basis.

Also, in 2018, she purchased a home for $1,200,000, paying $400,000 in cash and borrowing $800,000 (Debt B) which was secured by the home.

One month later, still in 2018, she opened a line of credit secured by the home. She has spent $200,000 (Debt C) from the credit line to take a vacation (i.e., not a business trip) around the world.  

In 2018, her adjusted gross income is $59,000 and she paid the following interest:

Debt A interest $ 4,000

Debt B interest  $12,000

Debt C interest $8,000


How much interest is she entitled to deduct on each debt in 2018 year and why? Be sure to show all calculations.

Answer rating: 100% (QA)

Adjusted gross income 59000 Less deductions Student loan interest 2500 Note the maximum allowable de... View the full answer