Construction loan principal calculation

[User2538612]

I have a home construction loan for personal use with a commitment from a bank of $1M. The interest payments are based on the amount dispersed as the home is being built, so it started off very low and gradually increased as we took out more to pay for the construction.  For purposes of calculating the average principal balance and the amount of interest I can deduct, is the principal balance the $1M committed loan amount or the average balance amount I had during the year?

[zomboo]

You need to calculate the average monthly average by adding up the balances from your loan statements and dividing by the number of months the loan was held during the year. You need to keep separate monthly balances for the total debt and acquisition debt if you have used any of the loan proceeds on personal expenses and apply principle payments to the personal balance first.

The interest on a home under construction only applies during a 24 month period before the home is ready to move in and you plan to make the home your main or second home.