The interest deduction calculation I did in my previous response is what is provided in pub 936. And you're right, it sucks for taxpayers that sell their home and buy another. Pub 936 and Turbo Tax both treat this situation as if you had a primary and second home during the year instead of trading in one home for another. However, there is an accepted method of calculating your deductible interest that is not in Pub 936 that will benefit you. I don't know why I didn't tell you about it before. It's called the Exact method and it will get you the amount of interest deduction you figured for the home you sold but not the interest on the $6K for the home you bought.
With the Exact method, you figure the average balance on the first home and subject it to the $750K limit: 750K/765K * 21,000 = 20,588 (just like you did). You need to understand that since the average balance on this mortgage is over the $750K limit, you have used up all of limit on this mortgage and can not deduct any of the interest on the new home this tax year.
You will need to manually enter the interest amount in Turbo Tax when you get to the 'Your deduction is being limited' page.
