@PatriciaV I am not worried about how to calculate the average for the home that was owned the whole year. I understand that. I am only talking about the home that was owned since June 2022. You said:
@PatriciaV wrote:
However, the mortgage on the second home was held for about six months (July - December). Your best option for this loan is to total the mortgage balances for each month, then divide by six. (You wouldn't divide by 12 because you didn't own the home all year.) This average is likely to be the same as (or close to) the average using first + last / 2. You can try it both ways and use the lower of the two answers.
This cant be accurate. That is NOT how you calculate the average mortgage balances FOR THE YEAR. Doing it the way you are suggesting would calculate like I was over the 750K limit the entire year which is wrong. I was only over the 750K limit June- December. So 7 months. I did not own the home the entire year, I did not have the outstanding mortgage balance the entire year, I only had it for 7 months within that year. That is exactly why you divide by 12 to get the average for THAT YEAR. My interest deduction should only be limited since June- December, not the entire year. The first home was owned the entire year, and I did not purchase the second home which put me over the limit until June 2022. Thus, the first home Jan- May interest deduction is 100% deductible. What you are suggesting would calculate it like I had both loans outstanding the entire year. I did not. To calculate the average for the year, you count it as zero balance the months the loan was not outstanding. So you total 7 months mortgage balances and 5 zeros ( January- May) and then divide by 12. The average should be average over the year, not over the time of the loan. If the loan that originated in June, it should have average mortgage balance only 1/7th of the loan amount.
Or you take the outstanding mortgage principal in Box 2, multiply that by the number of months you had the loan, then divide by 12. So, for my second home, I will essentially be reporting 1/7 of the amount of mortgage principal since I closed in June.
The IRS pub explains different methods to calculate the average balance for the year. https://www.irs.gov/publications/p936#en_US_2022_publink[phone number removed]
Interest paid divided by interest rate method. Mixed-use mortgages.
Some of those methods make is clear that you calculate the average balance for the year, not for the term of the loan. Mixed use mortgages example makes it clear.
