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Home Mortgage Interest Deduction - Limit on 2 homes

CA SKIBUM 2022 — Tue, 10 Mar 2026 06:36:45 GMT

Need your help with the aggregate mortgage cap on multiple homes.

1st home was purchased in 1/2017 - Primary residence

2nd home was purchased in 5/21 - vacation home (not rented at all)

(i) Do I assess the mortgage balance cap individually on each home i.e. $1.0 MM on 1st home and $750,000 on @2nd home OR

(ii) Do I assess the mortgage balance cap in aggregate and is that cap then $1.0 MM? If so, how do I allocate the interest expense between the two homes - e.g. first the 1st home and then remainder from 2nd home?

Thanks,

Re: Home Mortgage Interest Deduction - Limit on 2 homes

Mike9241 — Thu, 06 Oct 2022 05:42:15 GMT

the following assumes there was no cash-out refinancing (other than cash-out used to substantially improve the taxpayer's home that secures the loan IR-2018-32) on the debt on the first home. Special limits apply to the average mortgage balance that can be used. also that the 2nd home is secured by the mortgage on it.

the cap on both homes in total is $1M because the 1st mtge was taken out before 12/15/2017. either use Turbotax to fiqure the limitation by entering the 1098 info or use the worksheet in PUB 936 on page 10 line 1 is zero

there are many methods for computing the average mortgage balance

1) add balance at beginning of the month (start with January) and the end of the month and divide by 2. Do this for all 12 months. Total the averages then divide by 12

2) use only the month-end balances, total the 12 months then and divide by 12

3) for loans outstanding all year add the beginning and the end of the year balances and divide by 2

the irs says for 3) Average of first and last balance method.
You can use this method if all the following apply.

• You didn't borrow any new amounts on the mortgage during the year.

• You didn't prepay more than 1 month's principal during the year.
• You had to make level payments at fixed equal intervals on at least a semi-annual basis. You treat your payments as level
even if they were adjusted from time to time because of changes in the interest rate.
To figure the average balance:
a. Enter the balance as of the first day of the year that the mortgage was secured by your qualified home during the year Usually 1/1,
b. Enter the balance as of the last day of the year that the mortgage was secured by your qualified home during the year usually 12/31
c. Add amounts on a and b
d. Divide the amount on c by 2.0. if you use this method,enter the result on line 2

4) Interest paid divided by interest rate method. (i don't think Turbotax is capable of using this method)

You can use this method if at all times in 2021 the mortgage was secured by your qualified home and the interest was paid at least monthly.
to compute the average balance:
a. Enter the interest paid in 2021. Don't include points, mortgage insurance premiums, or any interest paid in 2021 that is for a year after 2021. However, do include interest that is for 2021 but was paid in an earlier year
b. Enter the annual interest rate on the mortgage. If the interest rate varied in 2021, use the lowest rate for the year
c. Divide the amount on a by b.

to compute deductible interest based on IRS PUB 936 worksheet on page 10 simplified because there is no grandfather debt and apparently the total of the average debt exceeds $1 million. see assumption at top

A) total the average mortgage balance for the two mortgages

B) $1,000,000 based on assumption at top

C) smaller of A or B

D) enter mortgage interest paid. do not include points or mortgage insurance

E) deductible mortgage interest = D times C divided by A

Re: Home Mortgage Interest Deduction - Limit on 2 homes

CA SKIBUM 2022 — Thu, 06 Oct 2022 23:10:58 GMT

Thanks Mike.

I went through Table 1 on Pub 936 and followed your calculation. The resulting home mortgage interest deduction makes sense.

Now the issue is how do I reflect this through Turbo Tax software. I've gone through this again and again. But Turbo Tax wants to give me the total interest paid on both homes as deduction without any regards to the $1.0 MM cap on mortgage debt.

Live Help (w CPA) wasn't helpful either.

Thanks,

Re: Home Mortgage Interest Deduction - Limit on 2 homes

Mike9241 — Fri, 07 Oct 2022 00:44:02 GMT

another section of Turbotax that I regard as extremely confusing. it would seem that the 1098-MTGE can't work to limit interest because it only has one balance so the average can't be computed. works ok for those not facing any mortgage interest limitation

you have the desktop version which allows you to use forms mode

delete any forms you use for the mortgage interest since they are not working IE THE1098MTGE

1) switch to forms mode from the view tab

2) on the forms tab in the search box/jump-to box enter

Home Mortage Interest Worksheet

highlight with mouse

click on open or add form

enter lenders name

click on add form

these are the minimum lines you must enter

2a - automatic

2c if yes

3 balance at beginning of THE year or in case of second home amount borrowed

4 - date original loan even if refinanced

5a - automatic

in the smart worksheet section (B if refinanced at any time)

after you enter one mortgage you add another of these worksheets to enter the info for the second mortgage

in forms mode you can view the worksheets Turbotax used to compute average balances and deductible vs nondeductible portions of thee intetest