you are on the right track...I assume that you purchased your home prior to Dec, 2017.
I assume what you are stating is you took out a $500,000 loan collateralized by your primary residence, paying off the original mortgage of $150,000 and used the $350,000 of cash out to buy a rental property; there is no debt on the rental property.
Line 1: 0
Line 2: 150,000
Line 3: $1,000,000
Line 4: $1,000,000
Line 5: $150,000
Linr 6: $150,000
Line 7: $0
line 8: $750,000
line 9: $750,000
Line 10: $150,000
Line 11: $150,000
Line 12: $150,000
"If line 11 is equal to or more than line 12, stop here. All of your interest on all the mortgages included on line 12 is deductible as home mortgage interest on Schedule A"
read the instructions closely! The interest RELATED TO THE $150,000 is all deductible. it says the interest related to the mortgages on Line 12 is deductible, not that ALL the interest related to the $500,000 is deductible!
and you are correct that the Schedule A deductible interest is $150,000 times the interest rate. And it will be that simple until the total mortgage amortizes down to $150,000 at which time all the interest will be SChedule A deductible.
if you sell the rental before the mortgage amortizes down to $150,000 (and not buy another rental property with the proceeds), the interest related to the mortgage part that exceeds $150,000 is not deductible ANYWHERE.
