question 1: no - it's the AVERAGE balance for the year that has to exceed $750,000 for there to be limitations on the interest.
you had a 12 month average of approximately
jan: 360
feb:360
Mar: 360
Apr: 360
May:360
June: 360
July: 0
aug: 0
Sept - Dec: 500 each month
so the average is well below $750k
I suspect you answered one of the questions wrong on the 1098. Please go back and review closely.
you really have 3 1098's right (1 from the old loan and 2 from the new loan). if you want to reduce the 'head banging, just take the 2 from the new mortgage and consider them as one 1098. the servicing sale does make it confusing. it won't change the outcome - all the interest should be deductible,
