I need help with IRS form 936. I took out a new mortgage in December 2018 that exceeds $750,000. I paid interest at the end of December and TurboTax tells me I need to fill out form 936 by hand to get the Allowable/Adjusted Interest I can deduct.
How do I calculate average balance (for lines 7 and 12 of 936)? It doesn't seem I can use the first & last balance method, since I had no balance in January 2018. So do I use the 'Interest paid divided by interest rate method'? That also doesn't seem right because I only paid interest for one month.
Thank you very much.
Take the daily balance for 31 days, which will be zeroes for the days before the loan was outstanding, add them all up, then divide the total by 31.
Thanks for answering, but unfortunately I'm still confused. How can my average balance be dependent on the day I get my loan? For simplicity, say my loan is one million. If I get my loan on December 21, using that method, my average loan balance would be around $333,333. But if I got my loan December 1st, it would be one million. How can it be so different in those two cases? And since one of those average balance numbers is above the 2018 max of $750k and one is under, it makes a material difference in the amount of mortgage interest I can deduct.
I have the same exact problem; we too purchased a home in December and our loan exceeds $750K. Pub. 936 is so vague on this topic. I agree it seems wrong that we should be penalized for purchasing late in the year. Doesn't it seem more logical to have zeroes for each month (Jan through Nov) and then the full loan amount ($784K in our case) for one month? That would make the average $65,333 per month in our case, which seems more reasonable. Someone, please explain further the logic behind doing it as explained TurboTaxAnita above. Thanks!