Deductible home mortgage calculation

[Stonks]

Hi,

I got a mortgage that was over $750,000. Given that I can only deduct interest on the first $750,000 but I made extra principal payments taking it under $750,000, I wonder about the calculation.

Originally, in January, I owed over $800,000 but then I made an extra principal payment taking it under $750,000. This means that all the interest paid starting March (and some part of February) could be deducted?

Does TurboTax have any way of handling extra principal payments (I know the date I made the extra principal payment taking it under $750,000 but that doesn't show on form 1098). Will TT just do $750,000/original which would give a lower percentage?

Thanks!

[zomboo]

The interest deduction is not based on mortgage balances month-to-month. It is based on the average monthly balance. TT calculates the average balance by summing the beginning and ending balances and dividing by 2. This is not the proper averaging method to use this year if you made an additional principal payment of over $50K to bring your mortgage balance below $750K.

You should use the Statements Provided By Your Lender method described in Pub 936. With a majority of your monthly balances below $750K, this method could yield most or all of you interest deductible.

[DaveF1006]

It depends. Here is how your mortgage limitation is applied and i will illustrate with a screenshot in the end of this post.

There is no method in Turbo Tax that will give you an exact month by month calculation to determine the accuracy of the limitation. Instead,  it will give you an average balance of the difference between your beginning balance as of 01/01/2024 and ending balance at 12/31/2004.

Hypothetically, if we have a $800,000 balance in the beginning and $748,000 (which would include your principal paydown) as of 12/31.The average balance is $774,000 between the two amounts. Now let's assume you paid $30,000 in mortgage interest. Here is how the limitation is calculated. ($750,000/$774000)($30,000) =$29,070. If you look at IRS publication 936, page 11 uses the same worksheet as I illustrate below thus Turbo Tax follows the same method of calculating the mortgage interest limitation.