We have what I suspect is a very common tax situation, but I can't seem to get TurboTax to handle it properly.
Married filing jointly, for the first half of the year lived in a primary residence with a mortgage balance under the deduction limits ($670K). At the end of June, we sold our house and bought a new home, with a mortgage balance slightly over the new limits ($780K). Total interest paid on the two loans was about $22K.
When we enter the new and old 1098s, TurboTax seems to treat us as if we had an average $1.45 million mortgage balance for the entire year and limits the deduction to about half of what we paid. Although neither TurboTax nor IRS publication 936 seem to directly discuss what should happen when you move, I get a slightly different result: using the interest divided by lowest rate method (IRS pub 936, page 13), I get an average mortgage balance of about $770K, meaning that once I plug those numbers into the IRS worksheet, about $21K out of the $22K we paid in interest is deductible.
I have two questions for the group:
(1) Am I applying the average mortgage balance calculation correctly? I note that under another of the tests that the IRS uses, the first/last balance test, our average would be even lower, but I suspect this test may not be the correct one to use in a year in which you moved.
(2) If these calculations are correct, how do I translate it to Turbotax? Should I just create a fictitious 1098 with the total interest payments plus the calculated balance, similar to what has been suggested for users who refinanced? If I do this will this create issues later in the program?
