In 2020, we had 1 home (Home A). Interest was $12,000 on $350,000 principal. That $12,000 was fully deductible.
In 2021, Home A had interest of $10,000 and we bought a new Home B (bought in Nov 2021). Home B interest was $2,000 on $750,000 principal.
According to my understanding of the IRS rules:
- Home A average balance: assume $350,000
- Home B average balance: assume $750,000 for Nov
- Total average balance is therefore $1,100,000
- Total interest: $12,000
- Qualified limit is $750,000
- Deductible percentage amount is $750,000 / $1,100,000 = .682
- Deductible interest is .682 * 12,000 = $8182
So, by buying a second home with a mortgage, I am now getting a diluting amount of deductible interest. The limit was breach for a small portion of time in 2021 but that isn't taken into consider or weighted in the calculation. It treated as if i have had a mortgage balance about $750,000 for the entire year. Is that accurate? Has TT or IRS has any update regarding this issue?
Do I have to include the new home in the tax forms, or I can just ignore it and stick with the $10,000 from Home A as the deductible amount?
Much appreciate to hearing your advice.
