The Tax Reform Act of 1986, made personal interest nondeductible The temporary regulations (1.163-9T & 1.163-10T) came out shortly after the 1986 tax reform, and proposed the qualified home limit be equal to the home value when the mortgage was secured plus additional expenses to improve the home. Most of the temporary regulations became obsolete when the 1987 Tax Cuts and Jobs Act was enacted which imposed $1,000,000 limit on acquisition debt and $100,000 limit on equity debt but left the mortgage limit tied to the value.
The memorandum that you site (https://www.irs.gov/pub/irs-wd/1201017.pdf) provides advice on the temporary regulation 1.163-10T mortgage deduction limit. It concluded that, until further regulation is passed, the provisions of 1.163-10T apply, provided the current limit of $750,000 is substituted in place of the home value.
Note, however, that none of the information provided in these resources speaks to your situation of having both a main and second home. All of the examples are for multiple mortgages secured by the same home. If you follow the debt-by-debt approach, each mortgage is under $750K and, therefore, all of your interest would be deductible. This is not the intent of Pub 936.
You chose to follow the debt-by-debt approach as if both mortgages are secured by the same home, but you didn’t do it correctly. Here is my interpretation on how that would work:
Condo Mortgage:
Origination Date – August 2021
Average balance for 2023 - $458,000
Interest Paid in 2023 – $12,048
Deductible Interest: Balance below $750K all year so all interest is deductible
Main Home
Origination Date – 8/29/23 (1st Payment in October 2023)
Average balance for 2023 – $725,000
Interest Paid in 2023 - $12,465
Deductible Interest: ($725K -$458K)/$725K = 36.8% of $12,465 = $4,587
Total Deductible Interest: $12,048 + $4,587 = $16,635
But this too is not the intent of Pub 936.
You can override the deductible interest in Turbo Tax with your calculated value. That’s up to you. You just need to be prepared to explain how you got your value in the unlikely event someone asks. For the record, if you follow Pub 936 you get:
$725K/$1.183M = 61.3% of ($12,048 + $12.465) = $15,026
