on 1/1/19 my wife and I owned two properties, a primary residence and a second home. Total outstanding mortgage balances were as follows (all numbers rounded for ease of calculations):
Primary residence - $356k first lien (originally incurred in 2013) and $135k HELOC (originally incurred in 2018)
Second home - $92k first lien (originally incurred in 2005)
On 10/1/2019, HELOC balance was increased by $65k to $200k total and proceeds were used to improve primary residence.
On 10/24/2019 purchased new primary residence and moved in. Initial mortgage balance was $1,372,500.
On 12/31/19 owned three homes with following mortgage balances:
New primary residence - $1,367,500 first lien
Old primary residence (under contract to sell but doesn't close until after 1/1/2020) - $334k first lien and $200k HELOC
Second home - $88.5k first lien
Total interest for year was as follows:
1L mortgage on original primary residence: $9,500
HELOC on original primary residence: $7,000
1L mortgage on second home: $4,600
1L mortgage on new primary residence: $5,400
My confusion is because this intersects several different rules including that 2 of the mortgages were incurred before 2017 and 2 were incurred after (so different caps apply), we are over the $750k cap for part of the year and there are 3 properties for part of the year.
Which mortgage interest can I claim, and how do I calculate it?
I calculated it using the worksheet in the IRS mortgage interest deduction publication, but couldn't really figure out what to exclude when it came to the 3 property part of the equation since that was only for the last couple of months of the year. I ended up just throwing all three properties in there which increased the overall average balance over the $750k cutoff which resulted in a haircut on the interest deduction. I think in the end it is probably within a couple hundred dollars of the right number, but would love to see someone do the math based on the above.
Anxious for you to get an answer - our is similar but ours was a construction, interest only loan we paid throughout 2019 - but at varying balances. Here's hoping someone can help us!
Enter the 1098 in order and answer the interview questions carefully.
If you show an error, please follow these directions.
There is an embedded help link for you to use if you need to compute the average balance.
Please go back to the Home Mortgage Interest section:
Click Federal on the left side-bar
Click Deductions & Credits along the top
Scroll down to “Mortgage Interest and Refinancing (Form 1098)” Click Edit/Add
Scroll down the “Here’s your 1098 info” screen and click Done.
Next screen asks “Do any of these situations apply to you?” Select “Yes, one or all of these situations apply to me.” and Continue.
On the following screen, you will see the “Original amount”.
Enter the amount you can claim as a Home Mortgage Interest deduction in the “Adjusted amount” box. The Adjusted amount cannot be larger than the original amount or you will receive an error when trying to file. Instructions on who needs to adjust interest and how to calculate are available by clicking the blue “Help me figure this out” link.
Go into Forms (top right)
Enter the amount on Tax & Int Wks
Mortgage Interest Limited Smart Worksheet section
Step by Step
Deductions & Credits
Mortgage Interest, Refinancing and Insurance Click Update
Click Yes, one or both of these situations apply to me. And Continue
Enter the Adjusted amount and Continue
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