Q: We took out a $320,000 mortgage to buy our home several years ago. We recently used inheritance money to pay off the $220,000 balance on the mortgage. Our house is now worth around $700,000. If we take out a new mortgage for $400,000, can we deduct all of the mortgage interest we'd pay? L.M.S., Montvale, N.J.
A: No. In this situation, your new mortgage would be treated as home-equity debt for tax purposes. You can only deduct interest on up to $100,000 of home-equity debt. If you pay the alternative minimum tax (AMT), it's even worse. You cannot deduct any of the interest under the AMT rules.