For what it’s worth, here’s what I did, based on my reading of Pub 936.
Loan 1 originated in 2015 < 1,000,000
Loan 2 originated in late 2020, and refinanced Loan 1
Loan 3 originated in late 2020 and is for an RV, which qualifies as a 2nd home, and has no 1098.
Loans 2 & 3 total more than $750,000
From Pub 936 Part 1 - If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages… If one or more of your mortgages doesn’t fit into any of these categories, use Part II of this publication to figure the amount of interest you can deduct.
Loan 1 fell into the 2nd category listed, so the interest is 100% deductible. For loans 2 & 3, I have to go to Part II. If all you have is the refinanced loan, then the loan limit is the higher of $750,000 or the amount that was used to pay off the original loan (not including closing costs and points).
Now for Average Balance. First, Loan 1 does not fall into the Part II category, so that loan is not in the calculation, and I did not average the balances. For Loans 2 & 3, I simply added the loan amounts together and divided that amount into 750,000 (750000 / Total Post 2017 Loan Amount) That gave me a decimal number that I then multiplied by the interest amount of loans 2 & 3, which was then added to the interest for loan 1 to give me my total interest deduction allowed.
Pub 936 Part II page 13 -
You can use the highest mortgage balances during the year, but you may benefit most by using the average balances. The following are methods you can use to figure your average mortgage balances.
Average Mortgage Balance
You have to figure the average balance of each mortgage to determine your qualified loan limit. You need these amounts to complete lines 1, 2, 7, and 12 of Table 1. You can use the highest mortgage balances during the year, but you may benefit most by using the average balances. The following are methods you can use to figure your average mortgage balances.
Average of first and last balance method. You can use this method if all the following apply. You didn't prepay more than 1 month's principal during the year. (This includes prepayment by refinancing your home or by applying proceeds from its sale.)
TT is using the first and last balance method for all mortgage amounts, which is incorrect. Table 1 (Pub 936) would be applicable if all of my mortgages were subject to the rules in Part II.
To enter this into TT, I added the 2 1098s and the non-1098 loan, then in Schedule A, I overrode the calculated values on lines 8a and 8b.
