Are you proposing running through Table 1 twelve times, once for each month of the year? This would allow 100% of the interest on the $400,000 loan in months 1-6 and approximately 98.8% of the interest on the $800,000 loan in months 8-12. For month 6, the deductible interest would be $750K / ($1.8M + $400K) = 34.1% of the interest for that month. So that would be ($1,000 X100% X 6) + ($2,760 X 98.8% X 5) + ($7,200 X 34.1% X 1) = $6,000 + $13,634 + $2,455 = $22,089 which is 81.8% of the total interest paid. Yeah that's fairer alright but a whole lot of work and don't bother getting clarification from the IRS on this method. That would be a big waste of time.
The fairer method I proposed would get you 100% of the total interest as a deduction but this also is not allowed by pub 936 as far as I can tell. Although I am exploring possible loopholes.
