Bought and sold a home in the same year mortgage interest deduction

[zxl124]

I am filing my 2022 return with TT Deluxe Desktop version. My situation is that I bought and sold a home in 2022. The old mortgage has an average principal of $480,000 for 10 months. The new mortgage has an average principal of $1.1M for 5 months. TT is simply adding up both numbers and limiting my mortgage interest deduction by 750,00/(480,000+1,100,000) = 0.474. But that doesn't really makes sense to me. The only months where this made sense is when I had both homes (3 months).

TT recognizes this, and even says "we could be missing details that would let you claim additional mortgage interest, .... you may want to review IRS publication 936 to check if you could adjust calculations." and a "Help me with this" button. But when I click this button, TT crashes.

When I read the IRS pub 936, I am not sure how to calculate the average mortgage balance. Method 1 (average of first and last balance) will get the same result as TT did. I cannot use Method 2 (interest paid divided by interest rate) because I did not have the mortgages all year. Method 3 (statements provided by lender) could potentially work. It says use 0 for the months the mortgage wasn't secured by home. However, it then says "dividing that total by the number of months the home secured by that mortgage was a qualified home during the year". Does this mean, for my old home, divide the total by 10, new home, divide by 5, instead of dividing by 12 for both?

I've read threads at https://ttlc.intuit.com/community/tax-credits-deductions/discussion/mortgage-interest-deduction-comp... and https://ttlc.intuit.com/community/tax-credits-deductions/discussion/selling-and-buying-a-home-in-the... . They make sense to me, but not sure if this is consistent with IRS pub 936. See my reading above. If I calculate my average mortgage balance this way, would it increase the chance I get audited? 

[Mike9241 · Accepted solution]

PUB 936 is poorly written because it doesn't cover your situation which is quite common.  using example 1 in the pub as a basis (the 180K second mortgage proceeds use d to improve house  taken out 3/2/2022 monthly balance 1,800,000 (180K X 10) average balance $150K  1.8M/12 

i would say your average balance is $480K*10/12 + $1.1M * 5/12 which  is about $858K

so your deduction would be 750/858 times the total of the interest

[robNC]

YES!   TT always crashes for me also when clicking "help me" link for mortgage deduction limitation.

I assume that section would better flesh out what people like us (sold and bought house in 2022) should do.

I for one have depended on TT for years, and this error is worrisome.  I wonder if the Audit Protection would kick in to help defend any mistakes.  And how can TT advertise "maximizing deductions and refund" when by default it disallows otherwise deductible interest in a VERY COMMON occurrence.

[ohlern]

Thanks TT community!  This TT calc made no sense to me either, looks like some bad code that nearly cost me 5k.  Total sh*tshow from TT on this one.  I'm a believer in TT and will keep using it but good grief what a miss on this one.  If you buy and sell a house in the same year, better take a close look at this calculation...

IRS 936 is of course also totally unreasonable to try and follow but I guess that goes without saying.  The burden of sorting out individual taxes is far from righteous.  One day we'll evolve.  Not there yet.