Construction Loan Interest Deduction

[jbryan]

I have an existing mortgage with a beginning balance of $427k and an ending balance of $418k. We took out a construction loan to build a second home, but the interest was only paid on the amount drawn, so in January the loan amount was only $35k, but it grew to $720k by the end of the year. Given the $750k limit on interest deduction, does the limit apply to the ending balance ($1.14M), or to the average balance ($423k on existing home and $356k on construction loan)?

[KrisD15]

You can use the average, but TurboTax does not afford that calculation. 

In TurboTax, you will have to do that calculation yourself, then when the program says the interest is limited, you can enter the amount you can deduct based on your calculation ( or simply enter the proper amount on the 1098 screen) 

Yes, the IRS gets a copy of the 1098, but it is not "matched" to your input. The software uses your input to determine the deduction only. 

Pub 936