Hi,
I've seen several posts on how Turbo-Tax computes mortgage interest deduction, but I don't see a good conclusion. Here's my situation with two mortgage balances over the year (I've simplified the numbers for make the calculations easier):
| Month | Mortgage-A (pre-2017) | Mortgage-B (2023) |
| 1 | 400,000.00 | |
| 2 | 400,000.00 | |
| 3 | 400,000.00 | |
| 4 | 400,000.00 | |
| 5 | 400,000.00 | |
| 6 | 400,000.00 | |
| 7 | 400,000.00 | 1,800,000.00 |
| 8 | | 800,000.00 |
| 9 | | 800,000.00 |
| 10 | | 800,000.00 |
| 11 | | 800,000.00 |
| 12 | | 800,000.00 |
| Total Interest Paid | $7000 | $20,000 |
Here are the applicable documents I've found from IRS and Googling:
- IRS Publication 936
- IRS Memorandum 1201017
The second reference describes two methods -
A simplified method that is similar to the method used by Turbo-Tax or the worksheet in IRS Pub 936.
"Under the simplified method, interest on all secured debts is multiplied by a fraction, the numerator of which is the adjusted purchase price of the qualified residence and the denominator of which is the sum of the average balances of all secured debts. Since enactment of OBRA 1987 the $1,000,000 acquisition indebtedness limitation and the $100,000 home equity indebtedness limitation must be substituted for the adjusted purchase price."
An exact method which seems to be the right thing do to for most folks who have multiple mortgages like the above -
"Under the exact method, the amount of qualified residence interest is determined on a debt-by-debt basis by comparing the applicable debt limit for the debt to the average balance of each debt."
If I use the exact method to the situation above, then I would proceed as follows:
- [A] For the pre-2017 mortgage, all of the $7K interest is qualified because the average mortgage balance ($400K) is within the pre-2017 limit (which is $1M).
- [B] For the new 2023 mortgage, the average mortgage balance is $966K and only the fraction ($750K/$966K = ~78%) is allowed due to the TCJA $750K limit. This comes to $20K * 78% = $15517.
So, the total allowed deduction is $7000 + $15517 = $22517.
Can a TT expert confirm that this is the right way do approach this situation? If so, how do I massage Turbo-Tax so this get e-filed correctly without any ambiguity?
Thanks!
