What is the character of the deduction


When Frank purchased his home 10 years ago, he paid $350,000 and financed the purchase with a $300,000 home mortgage. At a time when the principal on the mortgage was $263,175, Frank took advantage of increased home values and historically low interest rates to refinance his home mortgage. The new mortgage had a principal of $400,000 and a 3.5% interest rate. After paying off the original mortgage, Frank used the remaining loan proceeds to pay off high-interest credit card debt. To simplify things, assume Frank's interest expense for the year was $14,000 (i.e., 3.5% * $400,000). How much of this $14,000, if any, can Frank deduct and what is the character of the deduction (i.e., for AGI or ID)?

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Accounting Basics: What is the character of the deduction
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