One other thing to pay attention to: the $750k limit is for married filing jointly. Your numbers would work out correctly if you're married to someone who is not the partner with whom you bought the new house, since then you can use the $750k limitation against only $833k of mortgage balance. If you're married to that partner, then the mortgage balance is the full amount (you said 1.6MM) rather than the $833k for your half. If you're single (or married filing separately) your limitation is $375k, and your average balance sounds correct but you'll have to reduce the deduction you take based on the $375k limit.
