A homeowner bought his home for $150,000. Ten years later, he refinanced his mortgage and borrowed $100,000. Which of the following is true for this type of property?

A. Interest on the difference between the original loan amount and the refinanced amount is not deductible
B. Interest on only half of the difference between the original amount and refinanced amount is deductible
C. Interest on loans such as this one for the purchase or refinance of a principal residence is deductible
D. Interest deductibility will depend on the borrower's tax bracket

Answer: C. Interest on loans such as this one for the purchase or refinance of a principal residence is deductible
For a principal residence, interest on a purchase or refinance loan is fully deductible. Interest on a home equity loan of up to $100,000 is also deductible, regardless of the size of the purchase loan, and regardless of the taxpayer's income.