I have two loans, one for my main home that originated prior to Dec 2017 (~680K), I have another loan for a second home (not a rental) (~500K) that originated after Dec 2017. So I should be able to claim all the interest on my first loan since it's below 1 million. My second loan is subject to the 750K limit, but I'm not clear if you look at each loan separately or if you need to look at the combined balance and prorate some of the interest ?
For the 2019 tax year, the mortgage interest deduction limit is $750,000, which means homeowners can deduct the interest paid on up to $750,000 in mortgage debt. Married couples filing their taxes separately can deduct interest on up to $375,000 each.
Here are some instructions that will help:
If there is a refi and there was an outstanding mortgage principal listed in both of them on Line 2 on the 1098. When you do put an outstanding balance in both forms, then the program adds them together and if that number is greater than $750k, then it puts you in the category to "limit interest". To get that to go away, you need to go back to the deductions section and click on "edit" mortgage interest statement. Change the line 2 of the mortgage that you no longer owe on (like the one that you refinanced and paid off) to a 0 (zero) because you have refinanced out of that loan and no longer have an "outstanding mortgage principal". Once you change one of them to zero (the one that was paid off by the refinance) then it should no longer pop up with that error at the end when you go to file.
About Tax Deductions for Mortgage Interest
I have two separate mortgages, for two separate houses, one is grandfathered under the pre-2018 rules and one is post 2018 and subject to the 750K limit. From the reading I've done at the IRS site, it seems like I can deduct all of the interest from the first mortgage, but it seems like I can only deduct a percentage of the second mortgage ?
No, you don't have to limit the mortgage interest deduction on a second home, even if you have two mortgages. As long as the second home is considered a residence and not being rented out, interest on the mortgage is deductible within the same limits as the interest on the mortgage on your first home. Here is a Turbo Tax article that discusses this topic.