@oleg515 , while I agree with both @NCperson and @VictoriaD75 , I just wonder if there is a different reading of the question. As I read it, to me it is a situation where Tax Payer A, had a home mortgage remaining balance of $400,000 at the start of the year. On June 30th. the mortgage was refinanced for $350,000. In this case the average loan balance for the year is (400,000 X 6 + 350,000 X 6 ) / 12 = (2,400,000 +2,100000)/ 12 = $375,000 for purposes of qualifying mortgage interest deduction. IT is NOT the sum of two mortgage outstanding balances.
And clearly per @NCperson , if there is cash-out and the excess amount is not used for qualifying purposes, then one has to make required adjustments to compute the average balance and thereby allocate allowable interest for deduction.
Am I reading the question wrong ?
