How to calculate average mortgage balance over $750,000 for loan and refinance in 2025

[whatleyk]

I had a mortgage and refinance in 2025, both over the $750,000 limit for my personal home, no HELOC. Loan A was Jan-Nov 2025 and I have the monthly bank statements showing ending balances. Loan B refinance (lower interest rate) in Dec 2025.  Loan A total month balances divided by 11 months is $1,393,998.  Loan B refinance for $1,495,000 (just 1 month).  Total of those is $2,888,998, divided by 2 for average is $1,444,449.  Applying the $750K limit ($1,444,449/$750,000) = .519.  Interest paid on both loans $109,670 x .519 = $56,941 deductible interest amount.  Am I correct to average this way and if so, how do I enter the data in TT to get the correct deductible interest amount?  When I enter numbers in TT, I get a deductible amount of $55,054.00.  

[Mike9241]

the loan balance on a refi can not exceed the principal outstanding on the old loan immediately before the refi. unless the excess was used to make substantial improvements to the home 

assuming the excess was not used to substantially improve the property, you have a mixed-use mortgage

Such a mortgage is split into two parts  - acquisition debt, the balance on the previous loan, and non-acquisition debt, the excess. principal paymenst are now applied to the non acquistion debt prtion until it is reduced to zero (IRS PUB 936) 

The balance for the 12th month is equal to the balance on the old loan because I assume any principal payment would apply only to the excess

There are many ways to compute the average balance. PUB 936 only addresses two, but I'm not sure those are the only allowable methods since the PUBs are not official IRS documents, which have the force of the tax laws, but merely guidance 

1)It could be the balance for each month before the mortgage payment for that month. (the last month would be the amount of the old debt) and divide by 12.

2)or it could be the mortgage balance at the beginning of the year + the allowable portion of the new mortgage at the end of the year divided by 2.

3) or it could be the average balance each month (the balance before and after that month's payment divided by 2. You sum up each month and divide by 12

note PUB 936 uses the second method

PUB 936 

not sure which methods TurboTx can handle by just inputting the 1098 info and answering some questions

[whatleyk]

Thanks for the info.  I went back and looked at my data, to maybe help clarify my situation.  Loan A bank statement principal balance was $1,490,087.37 on 11/14/2025.  Payoff amount (principal + accrued interest of $11,140.85) was $1,501,228 on 12/08/2025.  We paid some cash at closing and new Loan B refinance is $1,495,000.  Since I had Loan A for 11 months and Loan B refinance for 1 month, just curious if I should average Loan A.