McGraw-Hill's Taxation of Individuals 3rd Edition by Brian Spilker,Benjamin Ayers,John Robinson,Edmund Outslay ,Ronald Worsham,John Barrick,Connie Weaver

Exercise 19

Javier and Anita Sanchez purchased a home on January 1 of year 1 for $500,000 by paying $50,000 down and borrowing the remaining $450,000 with a 7 percent loan secured by the home.The loan requires interest-only payments for the first five years.The Sanchezes would itemize deductions even if they did not have any deductible interest.
a.Assume the Sanchezes also took out a second loan (on the same day as the first loan) secured by the home for $80,000 to fund expenses unrelated to the home.The interest rate on the second loan is 8 percent.The Sanchezes make interest-only payments on the loan in year 1.What is the maximum amount of their deductible interest expense (on both loans combined) in year 1
b.Assume the original facts and that the Sanchezes take out a second loan (on the same day as the first loan) secured by the home in the amount of $50,000 to fund expenses unrelated to the home.The interest rate on the second loan is 8 percent.The Sanchezes make interest-only payments during the year.What is the maximum amount of their deductible interest expense (on both loans combined) in year 1