Pub 936 is intended to provide guidance on applying the tax code to the mortgage interest deduction. It provides some of the acceptable methods of calculating the average mortgage balance and applying the deduction limit. Pub 936 does not, however, address the situation where a taxpayer sells their main home and buys another. These taxpayers are stuck with the instructions in Pub 936 that apply for taxpayers with both a Main and Second Home which are generally unfavorable if you sold one home and bought another. However, Pub 936 is not absolute and any reasonable alternative method of applying the mortgage limit may be used.
@lvikiYour method is not reasonable because you are applying the $750 limit to each mortgage individually which exceeds the limit. @Mike9241 Your method is reasonable in my opinion but you can't overlap the monthly balances. This is because you can only deduct the interest paid while the home is a qualified home and only one home can qualify as the main home at any one point during the year. Home1 was the qualified main home up to moving into Home2, lets say Dec 2024, when it became the qualified main home.
I believe it is reasonable to sum up the monthly balances of Mortgage1 for Jan through Nov with the Dec monthly balance for Mortgage2 and dividing by 12 to get your average mortgage balance. Then divide 750K by this average balance to get the % interest deductible. Only sum up the interest paid for Mortgage1 Jan through Nov with the interest paid for Mortgage2 in Dec and multiply by the %.
