Average mortgage outstanding?

[bmbecraft]

So my situation is that I sold my old condo in June 2024, which had a mortgage balance of about $280K, and purchased a new home that same month, with a mortgage of $634K.  Obviously, these are both under the $750K limitation, and there was no overlap between these two loans; I obtained the latter a week after paying off the former.  I understand that I can use the IRS-sanctioned "average balance" method so that 100% of the interest on both mortgages is deductible...  My question is, how do I do this within TurboTax?  The software seems to want to limit my deduction based on summing the two mortgages together for a total outstanding balance well above the $750K limit.  Do I need to report a different outstanding mortgage balance than what is shown on my 1098s for each?  Or do I just manually override the deduction on the screen where it tells me that my deduction is being limited, and will this be some sort of a red flag for the IRS?

Thank you!!

[zomboo]

Turbo Tax is calculating the interest deduction in accordance with the currently accepted interpretation of Pub 936. Because the mortgages are secured by different qualifying homes, the $750K limitation applies to the sum of the average balances, not to each individually. This is obviously unfair for taxpayers who sell one home and purchase another in the same tax year.

[zomboo]

@bmbecraftI just realized that you said that your two mortgages didn't overlap and then I remembered a note in Pub 936 that says if the sum of all your mortgage balances (not the averages) never exceed the $750K during the year, then you don't have to use Table 1 and all of your interest is deductible. I am sorry I didn't think of this before. The note is on page 10 of Pub 936 under 'Table 1 Instructions'.

I tested it using Turbo Tax 2023 desktop (I don't have the 2024 version yet) and it limited the deduction but allowed me to override the limited value with the full amount.

[AmyC]

You qualify for the full amount. It will not give the IRS a larger red flag since you have sale and purchase dates, no problem.