I have been looking for clear guidance from the IRS and can't find any. My suggestion is to use $50,000 the in the equation rather than $25,000. This way you should be able to deduct $12,500 instead of $6.25K because this makes much more sense. The ratio is already reduced by the $375K limitation that already cuts your reportable interest by 1/2.
I am using a quote from IRS PUB 936 on page 13 of the publication. This is an instruction for filling out the mortgage Limitation Worksheet. In the pub, it suggest to use the amount reported on form 1098. This means the full interest amount.
@lotoftaxes123
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