We purchased a home on mortgage in Oct 18. We rented our old home in Nov. The loan for both the properties exceeds $750K. Turbo tax is asking me to calculate adjuste amt?

[divinelotus]

We purchased a new home on a mortgage loan in Oct 18. We rented our old home from 11/15/18, so we got rent for a 1.5 mos in 2018. We still are paying mortgage on the older home. The loan for both the properties exceeds $750K. Turbo tax is asking me to calculate adjusted amount. How do I do this?

[KrisD · Accepted solution]

There is a worksheet on page 11. 

You can average your loans for 2018. 

You can allocate the Interest from Nov. and forward to your schedule E for the rental. 

BASICALLY average the first loan and the second loan, then add them together. 

https://www.irs.gov/pub/irs-pdf/p936.pdf

Here is another example;

If the debt is secured by a qualified residence for less than the entire period during the taxable year that the residence is a qualified residence, the average balance may be determined by multiplying the average balance determined under the "average of first and last balance method" by a fraction, the numerator of which is the number of days during the taxable year that the debt is secured by the qualified residence and the denominator of which is the number of days during the taxable year that the residence is a qualified residence. The following example illustrates this scenario:

Example:

Loan #1: In 2005, Taxpayer B incurred acquisition debt of $1,500,000 securing the loan with his principal residence. The beginning balance of the loan on 01/01/2007, was $1,441,260 and the ending balance on 12/31/2007, was $1,419,218. During 2007, Taxpayer B paid mortgage interest of $85,876 on this loan. The terms of the loan require B to make equal monthly payments of principal and interest so as to amortize the entire loan balance over 30 years.

Loan #2: Taxpayer B incurred a debt of $100,000 on 03/01/2007, securing the debt with B's principal residence. On 12/31/2007, the principal balance of the loan is $97,786. The residence is a qualified residence for 365 days in tax year 2007. During tax year 2007, the loan was held for a total of 306 days from 03/01/2007, through 12/31/2007. During 2007, Taxpayer B paid total interest of $4,951 on this loan. The terms of the loan require B to make equal monthly payments of principal and interest so as to amortize the entire loan balance over 20 years.    

For 2007, the deductible home mortgage interest is computed as follows:

Average Balance of Loan #1:  $1,441,260 + $1,419,218  = $1,430,239
                                                         2

Average Balance of Loan #2:  $100,000 + $97,786    X       306       = $82,908
                                                      2                        365

Aggregate Average Balance: $1,430,239 + $82,908 = $1,513,147

Total Interest Paid on Loans #1 & #2: $85,876 + $4,951 = $90,827

Deductible Home Mortgage Interest:   $1,100,000  X $90,827 = $66,028
                                                               $1,513,147

[rseago0806]

Right, now tell Turbo Tax that.