Yes and no. This is a thread from last year but the principal is the same this year.
Yes, you figure the average balances separately and then add them together.
No, you would not change your form 1098 entries.
You will continue to enter the information from your forms 1098 just as you received them. After completing your entries if TurboTax has calculated that your interest has been limited you will be given the opportunity to enter an adjusted amount of deductible home mortgage interest based on your calculations using Publication 936, Table 1.
Use the sample calculations below to help you figure your mortgage interest deduction which you would then enter in the "Adjustment" box.
As @RaifH mentioned last year the worksheets are not transmitted as part of your tax filing. Keep your calculations with your tax records in case the question ever comes up.
Sample with general amounts.
Loan 1 = beginning balance on 1 Jan 2022 (box 2 1098). $585,000; ending balance (payoff $580,000) Average mortgage balance with payoff in Aug (8 months). 585K + 580K/2 = 582.5K (8/12) = 388,333 (Table 1 lines 2, 6) Interest paid: 15,000
Loan 2 = beginning balance (box 2 1098) - 1.9M; ending balance 1 Jan 2023 (first statement 2023) 1.5M with 6 months interest paid (Jul-Dec) Average balance 1,900K + 1,500K/2 = 1,700,000 (6/12) = 850,000 (Table 1 line 7). Interest paid 15,000
Add those average balances together 388,333 + 850,000 = 1,238,333 (Table 1 line 12)
Therefore 750,000/1,238,333 = .6056 (Table 1 line 14)
Total interest paid: 30,000 (Table 1 line 13) x .6056 = 18,169 Deductible interest paid (Table 1 line 15).
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