I have a question in this regard as to how Turbotax calculates the interest limitation. I am not sure if I am reading the pub 936 correctly.
In my case, i had a primary home which was brought prior to December 2017 and had a beginning mortgage balance of 292K as of Jan 2021. I bought a new home - closed on March 31, 2021 with a starting mortgage balance of 623K and made it as my primary home with an ending mortgage balance of 614K as of end of 2021
I sold the old home and it closed on June 4,2021 when the mortgage balance was roughly 290K.
For these 2 overlapping months, my mortgage balance was above 900K. I am not finding a clear solution explained by IRS for these partial overlap scenarios.
Which one of this is the right way to figure out the average mortgage balance for 2021 to arrive at the interest deduction limit.
Option A -
Irrespective of the fact that my mortgage balance shot over the 750 k limit for those just 2 overlapping months - Should I use this
(Total Interest paid in 2021) * Average Mortgage balance of the first home (~291K) / Average Mortgage balance of the 2nd home (~617K)
Option B -
Calculate average monthly mortgage balance for each mortgage for all the 12 months (adding the monthly balance for Mortgage A and Mortgage B for each month, then sum up all the 12 months and divide by 12 to arrive at the average mortgage balance for the year) . With this, the monthly balance would be 0 for certain months for the old home and ditto for the new home (the months when i didn't own it) and the end result would be that my average mortgage balance for the year would still be under 750K rendering the entire interest as deductable.
Not sure which approach is right.
Any thoughts?
