I have an existing mortgage with a beginning balance of $427k and an ending balance of $418k. We took out a construction loan to build a second home, but the interest was only paid on the amount drawn, so in January the loan amount was only $35k, but it grew to $720k by the end of the year. Given the $750k limit on interest deduction, does the limit apply to the ending balance ($1.14M), or to the average balance ($423k on existing home and $356k on construction loan)?
