Hi All,
Turbo tax is not calculating the average loan balance automatically and wants me to supply the average loan balance. Pub 936 is very confusing and all examples talk about a loan which was there in the beginning of the year but I'm wondering how do I calculate the Average Loan Balance for a loan that was taken out during the tax year? NOTE: This is a loan to buy a new home and not a mixed use/heloc type loan. I don't have any other loans.
Scenario: Loan of $1.1M taken out on July 1, 2019 and assuming the balances for each month after july was 1.09, 1.08, 1.07, 1.06, 1.05, 1.04.
Calculation 1: Average Loan Balance = (0 + 0 +0 + 0 + 0 + 1.10 + 1.09 + 1.08 + 1.07 + 1.06 + 1.05 + 1.04) / 12 = 0.624 M = 624,000 which is under the 750,000 limit so entire interest is deductible.
Calculation 2 = 1.10 + 1.09 + 1.08 + 1.07 + 1.06 + 1.05 + 1.04 / 7 = 1.07 M which is over the limit so only 750000/1070000 * (Interest paid) is deductible.
Which of these methods is correct to calculate the Average loan balance?
