Thank you for the answer. I went through Table1 on form 936. Your answer makes logical sense to me but I have not figured out where the guidance is to use a months/year multiplier to prorate the average loanbalance.
What I don't understand from the answer to my original question is how I can apply 11/12 months to the first house average balance and 4/12 months to the second house average balance. I don't see that kind of proration in the form 936 guidance, but I think I am missing it because if the proration does not exist, I would only be able to deduct $17,468.305 of interest, which is lower than just deducting house 1's interest and totally ignoring house 2's interest. Can you please point me to where I can find this proration of months owned in the guidance?
My calculations are as follows:
1) House 1, bought in 2016 (so mortgage balance for mortgage interest deduction is all interest below $1 million mortgage balance), had an average mortgage balance of $834,723.59. This house was owned until November 14, 2023. This house was owned for 318 days, or 11 months, 14 days. The interest for the year was $25,902.03.
2) House 2, bought on August 9, 2022 (so mortgage balance for mortgage interest deduction is mortgage interest below $750,000 mortgage balance). Beginning mortgage balance was $1,115,000 and ending was $1,110,375.15, so the average balance was $1,112,687.575. The interest for the year was $14,816.63. Between August 9th and the end of the year, the house was owned for 145 days, or 4 months, 23 days.
If the proration does apply, then I think I would be able to deduct the following:
Average balance of loan for house 1, is $834,723.59. If I prorate it to reflect the months owned, it would be (11/12)*$834,723.59=$765,163.29.
Average balance of loan for house 2 is $1,112,687.575. Prorated to reflect the months owned (4/12), would be (4/12)*$1,112,687.575=$370,895.85.
Add those average balances together $765,163.29 + $370,895.85 = $1,136,059.14 (Table 1 line 12)
Based on 2016 loan date the qualifying loan limit is lower of $1M or $765,163.29 (Table 1 line 11). Therefore $765,163.29 /$1,136,059.14 = 0.6735, or .674 rounded to the nearest 3 decimal points (Table 1 line 14)
Total interest paid: $25,902.03+$14,816.63= $40,718.66 (Table 1 line 13) x .674 = $27,444.38 Deductible interest paid (Table 1 line 15).
In sum, can you please point me to the guidance on how to prorate the average loan balance by the months owned? And in this case, would the proper number of months be 11/12 and 4/12? Thank you!
