Mortgage interest deduction - Moved to new house in 2018 and converted previous house to rental property

[David3410]

I have an average mortgage balance of $390,000 (originated in 2011) on my previous primary residence (House A) where I was living till end of April 2018. I bought another house (House B) as primary residence in 2018 and moved into it in May. The average mortgage balance on House B is $690,000. I rented House A starting May 2018.

I know that I can split my mortgage interest for house A based on duration rented and use it to offset rental income. The other part I can claim as mortgage interest deduction. New tax laws for 2018 limit the mortgage interest deduction for mortgages originating after Dec 15, 2017. The limit is $750,000 for combined balance of all mortgages originating before and after Dec 15, 2017. My mortgage balance is certainly higher than the limit. However, in making the calculations using publication 936, I need to calculate total of my mortgages. I wonder whether I should use the full average mortgage balance for house A in this calculation or prorate it based on duration it was occupied as primary residence and duration rented.

Please help on the matter. 

[MarilynG]

You are correct that for the purpose of the Worksheet in IRS Pub. 963, use the % of Mortgage Interest for House A that you would claim as an Itemized Deduction on Schedule A.

The balance of the Mortgage Interest for House A will be claimed as a Rental Expense on Schedule E.

If you enter the total Mortgage Interest for House A in the Rental section first, along with available rental date, TurboTax should calculate the % of interest to move to Schedule A for you.

Here's more info:

https://ttlc.intuit.com/replies/6012857

[David3410]

The information regarding Turbotax automatically handling interest proration between rental and primary residence is useful. My question was however regarding mortgage balance. When calculating total mortgage balance in pub 936, do I use the full mortgage of house A or can I also prorate the mortgage pf house A? Or can I deduct all of the interest because my mortgage balance for primary residence, whether living in house A or house B, never exceeded $750,000?

[MarilynG]

Use full mortgage balance of house A.  You will be able to deduct all of your interest.. a % of the interest as a Rental Expense and a % as an Itemized Deduction. You can't deduct full interest on Sch A and also a % on Sch E (double dipping).

[ruthlessauto]

I'm in the same situation this year and my CPA is saying that I should let go of the Property A deduction which adds to my tax by a lot. I don't think she knows what she is talking about. Would die to know what you did at the end. 

Turbotax software did a % of property A interest based on the days we lived and added all of it to schedule A along with $750,000 worth of interest from property B. Not really sure if that's correct.