I came across this thread while researching another issue and wanted to comment.
Your discovery that turbo tax uses the ending balances instead of the average balances to calculate the percentage of deductible interest is correct. It's been like this for a few years now. This method is not anywhere in Pub 936 but does allow a slightly higher deduction. Don't bother reporting it. I did last year and it did no good.
Pub 936 Table 1 Line 12 is the total mortgage average balance including both acquisition and equity debt. The instructions for Line 12 refer to the averaging method for mixed-use mortgages but these instructions are incomplete and misleading.
Step 2 of the averaging method for mixed-used mortgages simply says to add the monthly balances together but does not say to divide each category total by the appropriate number of months to get the average. This is the number of months the home that secures the mortgage was a qualified home (as in the Statement Balance averaging method).
Step 2 only includes the Grandfathered and Acquisition debt in the total balance and omits equity debt. This balance is needed to calculate the total average balance for Table 1 step 12. Step 2 needs to specify summing the Grandfathered, Acquisition, and Equity debt balances to get the total average balance.
@whodiini @NCperson
