on 1/1/19 my wife and I owned two properties, a primary residence and a second home. Total outstanding mortgage balances were as follows (all numbers rounded for ease of calculations):
Primary residence - $356k first lien (originally incurred in 2013) and $135k HELOC (originally incurred in 2018)
Second home - $92k first lien (originally incurred in 2005)
On 10/1/2019, HELOC balance was increased by $65k to $200k total and proceeds were used to improve primary residence.
On 10/24/2019 purchased new primary residence and moved in. Initial mortgage balance was $1,372,500.
On 12/31/19 owned three homes with following mortgage balances:
New primary residence - $1,367,500 first lien
Old primary residence (under contract to sell but doesn't close until after 1/1/2020) - $334k first lien and $200k HELOC
Second home - $88.5k first lien
Total interest for year was as follows:
1L mortgage on original primary residence: $9,500
HELOC on original primary residence: $7,000
1L mortgage on second home: $4,600
1L mortgage on new primary residence: $5,400
My confusion is because this intersects several different rules including that 2 of the mortgages were incurred before 2017 and 2 were incurred after (so different caps apply), we are over the $750k cap for part of the year and there are 3 properties for part of the year.
Which mortgage interest can I claim, and how do I calculate it?
I calculated it using the worksheet in the IRS mortgage interest deduction publication, but couldn't really figure out what to exclude when it came to the 3 property part of the equation since that was only for the last couple of months of the year. I ended up just throwing all three properties in there which increased the overall average balance over the $750k cutoff which resulted in a haircut on the interest deduction. I think in the end it is probably within a couple hundred dollars of the right number, but would love to see someone do the math based on the above.
