Deductions & credits

The issue I am trying to report has nothing to do with the balance limitations of $1,000,000 or $750,000 stated in Pub 936. Table 1 in Pub 936 is used to apply these limitations (Part I) and calculate the percentage of total interest paid that can be deducted (Part II). The percentage is calculated by dividing the average acquisition debt by the average total debt.

 

Turbo Tax does not use the average balances to calculate the percentage of total interest to deduct. Instead, Turbo Tax is using the end-of year balances and apparently not rounding the percentage to three decimal places called out in step 14 of Table 1.

 

Turbo Tax (online) does not provide an option to enter the average balances or deductible interest manually this year. It did last year but had it's own collection of software bugs.

 

Please don't rely on information from Turbo Tax documentation on what the program is suppose to do. Look into what the program is actually doing. Below are calculation examples from my return.

 

Mortgage Balance: 309,110.03 (Dec 31) - 302,581.52 (Jan 1)

Acquisition Balance: 183,116.82 (Dec 31) - 183,116.82 (Jan 1)

 

First (Dec 31) & Last (Jan 1) Average: 183,116.82 / 305,845.78 = .59872273 = 59.9%

Ending Balances: 183,116.82 / 302,581.52 = .60518177 = 60.5% (Turbo Tax uses 60.518177%)

 

Technically, the first & last average method does not apply for Mixed-Use mortgages. The average of 12 months must be used (Pub 936 p. 12 top of 3rd column).