Reference no: EM13126923

Q. Bill and Ann bought a home in 1970 for $100,000. They put $20,000 down. The original $80,000 mortgage was refinanced for $200,000 on October 13, 1987 when the Fair Market Value of the home was $300,000. That refinanced mortgage of $200,000 has only 13 years left on its 30 year timeframe with a remaining balance outstanding of $100,000. They come to CNB today when the home is worth $1,200,000 looking to take cash out of $800,000.00. They are approved for the loan (6% interest) and you send them a check for the $800,000 with a total refinance of $900,000 (the first, $100,000, went to former loan pay off). They use the $800,000 proceeds to pay off $200,000 in credit card debt, $300,000 to buy that exotic Ferrari and $300,000 to buy a cigarette boat with no head, no galley and no sleeping quarters (but it is fast and burns a lot of fuel). Interest upon how much of the mortgage can they deduct for regular tax purposes and where is it deducted if it is deductible? Interest upon how much of the mortgage can they deduct for AMT tax purposes?