It's unclear what the IRS would have in mind, but in theory, the right answer is as follows:
*Compute the average balance on both loans every month (every day would be better, but that's going too far). You can take the balance at the beginning of the month and end of the month and divide by two to get an approximation if the bank doesn't tell you your ADB for the month.
*For each month, add the two average balances together to get a total monthly balance
*In 10 of the months (if I recall your dates right), you will have a monthly balance less than $750K. In 2 of the months, you will have a monthly balance higher than $750K
*For the two months with a balance higher than $750K, compute the fraction 750K / total monthly balance
*Use 1 (100%) for the ten months and your fractions for the two months. So (10+x+y)/12, where x and y are the fractions (expressed as decimals) for the two months.
*The result will be the fraction of your debt you can deduct.
