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How to calculate mortgage interest deduction for 2 non-overlapping primary homes?

Hi experts,

 

I have special situation that need your help on calculating mortgage interest deductions.

 

  • I have primary home 1 lived between 1/1/2023-7/31/2023, rented out on 8/1/2023-12/31/2023 (153 days). 1098 shows interest $26,641, loan balance $1,077,471. (This home is bought after 2018, so qualify for $750K mortgage)
  • I rented a home to live during 8/1/2023 - 10/19/2023
  • I bought another primary home 2 on 10/20/2023, and live there since 10/20/2023 as my primary home. 1098 shows interest $11,826, loan balance $1,661,471.


My understanding is that:

  • In rental part of TT, I should type interest from home 1: 153 / 365 * $26,641 = $11,167
  • In primary home part, I should type 2 interests, one is $26,641 - $11,167 = $15,474 from home 1, and another one is $11,826 from home 2
  • For home 1 during 1/1-7/31, I should deduct $15,474 * 750,000/1,077,471 = $10,771 interest, and for home 2 during 10/20-12/31, I should deduct $11,826 * 750,000 / 1,661,471 = $5,338 interest. Combined it's $16,109 interest to deduct.

 

But Turbotax tells me to only deduct $7,476 interest, which calculates as: ($15,474 +$11,826) * 750,000 / (1,077,471 +1,661,471).

 

I think Turbotax assumes both of my primary home interest are for whole year (overlapping), but it's not, home 1 is for 1/1-7/31, and home 2 is for 10/20-12/31, they are not over-lapping, so I think Turbotax's calculation is incorrect.

 

Is my understanding correct? If so, how should I fix it?

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1 Reply
MarilynG1
Employee Tax Expert

How to calculate mortgage interest deduction for 2 non-overlapping primary homes?

Actually, this is a fairly common situation, so don't worry. 

 

If you entered the date you started renting in the Rental Section, enter the entire year's Mortgage Interest as reported on your Form 1098, as an expense in this section.

 

TurboTax will calculate the Rental portion (based on Business % use, based on dates), and automatically put the remaining balance on Schedule A for you, so you won't need to make an entry for that.

 

You'll only need to enter your second 1098 from your new home in the Credits & Deductions section.

 

Be careful with the question 'was the property rented every day in 2023'.  You need to say 'Yes' here, as it is referring to the time it was designated as a rental. 

 

Here's more discussion on the topic of Rental vs. Personal Expenses. 

 

 

@Jerryxe 

 

 

 

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