The amount Mary can deduct in 2021 as an itemized deduction is $9,600 because the home equity loan of $20,000 used for the world trip does not qualify as acquisition indebtedness.
Data and Calculations:
Cost of home purchased in 2020 = $200,000
Down payment for the home = $40,000 ($200,000 x 20%)
Mortgage value = $160,000 ($20,000 - $40,000)
Maturity period of mortgage = 15 years
Interest rate = 6%
Interest expense = $9,600 ($160,000 x 6%)
Home equity loan = $20,000
Interest on home equity loan = $1,400
Thus, Mary can only deduct $9,600 as an itemized deduction in 2021.
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