I’m not convinced this is a complete solution.
Example:
Mortgage one entered into before 2020. Approx balance $680,000. Interest $29,000 for 2020. Mortgage interest rate 4.25%. Taxpayer intends to sell this property and has it listed for sale.
Mortgage two entered into September 2020. Approx balance $475,000. Interest $1500 for 2020. Mortgage interest rate 2.75%. This is a new property, which the taxpayer intends to move into in early 2021.
Adding them together will yield a balance well over the $750,000 limit, and a substantial amount of interest expense will not be deductible. In fact, the interest deduction will be less than the $29,000 on the old mortgage.
Using the IRS-allowed average interest method of determining the balances, the first mortgage will be about $680,000 ($29,000 divided by .0425). The same method results in a balance of $55,000 for the second mortgage (because it was only in place for 3.5 months and only one payment was made in the calendar year). The two together total $735,000, below the limit and thus the total interest from both mortgages is deductible.
I don’t see the TT “fix” leading to the correct outcome; instead the user must override TT forms/schedules, having done the calculations off-line, to get the correct outcome.
