Home mortgage deduction calculation

[dhairyathakkar93]

I purchased a home in March 2025 and took out a mortgage of $920,000. I refinanced the loan in December 2025 with a new loan of $915,000.

For 2025:

• Loan 1 was active from March–December 
• Loan 2 was active in December 

When calculating the mortgage interest limitation under the $750,000 cap (post-2017 loans), how should I determine the “average mortgage balance” for 2025?

Specifically:

• Should I use a full-year average (e.g., ~$910K as calculated by software), or
• Should I adjust for the fact that the mortgage only existed from March–December and use a time-weighted i.e. (sum of mortgage statements (March to Dec) + 0 (for Jan-Feb))/12 (~$766K)?

I want to ensure the calculation aligns with IRS Publication 936 for a loan that was not outstanding for the full year and was refinanced in the year.

[NCperson]

@dhairyathakkar93 use the "statement provided by lender" language on page 15.

Use the end of month balance for the original mortgage as provided by the lender for the nine months the mortgage was outstanding and then use the balanace from the refinanced mortgage for the 10th month (december)

Divide these 10 numbers by 10 to get the average balance.  The result should be around $910,000.

Pub 936 states: 

For each mortgage, figure your average balance by adding your monthly closing or average balances and dividing that total by the number of months the home secured by that mortgage was a qualified home during the year.  

<< Should I adjust for the fact that the mortgage only existed from March–December and use a time-weighted i.e. (sum of mortgage statements (March to Dec) + 0 (for Jan-Feb))/12 (~$766K)?>>

no.  Pub 936 states to divide by the number of months the mortgage was outstanding, which is 10 and not 12.