Thanks a lot. Calculating this way brings the deductible amount to a more reasonable level.
I wonder, though, isn't this a bug in TurboTax? It should make the calculation that benefits the taxpayer the most, and in this case it is clearly not. If we go back to my example:
First loan for 1M, paid 40K in interest throughout the year.
Second loan (for another property) for 1M, paid only $500 in interest for less than a month during the tax year.
Turbo tax calculates:
(40,000+500) * (750,000/2,000,000) = 40,500*0.375 = 15,187.
With the method you described:
For loan #2, the "correct" outstanding principal balance is: 1,000,000/12 = 83,333
Combined deductible for both loans: (40,000+500) * (750,000/(1,000,000+83,333)) = 40,500*0.692 = 28,038.
Turbotax giving you a 15K deductible instead of 28K is quite a big gap.
