Yes. A couple of items in play for your situation. You use 1/2 of the average mortgage balance for loan two plus the average loan balance of loan 1 to figure your interest deduction. You indicate someone else paid interest and report who's social security was actually on the 1098. Follow the steps below after the questions/answers.
- My condo mortgage was less than $750k, so the limit shouldn't apply to that mortgage … or does the $750k limit apply across all mortgages? The limit applies to the total of all average mortgage balances for the year.
- Because I sold the condo, do I automatically get to deduct all the mortgage interest on it, then account for the house separately? So, $8480 + whatever the calculation works out to for the house mortgage? No it's not automatic. You'll figure the average balances for each loan and add them together and divide by the loan limit (750K). See sample calculations below.
- Because the $833k debt was acquired in early June, my 'average' debt per month on that mortgage is ~$486k, assuming we evenly split it throughout the entire year. I tried following the IRS Average Mortgage Balance formula, but I wasn't sure I applied it correctly. Should I be averaging it as if I had the mortgage the entire year? Or do I only average it for the months that I had the loan? You will average the entire balance for each loan over the entire year. See sample calculations below.
- According to this turbotax answer: https://ttlc.intuit.com/community/tax-credits-deductions/discussion/selling-and-buying-a-home-in-the...
It seems as though the months that I didn't have the mortgage count as 0… which should reduce the average debt, right? Yes. See sample calculations below.
- There was an overlap period of about 4 months where I had both the condo and the house - does that affect the calculation? Yes. The average balance will go up due to overlap months. See sample calculations below.
Loan 1 - Use the amount from Box 2 on your form 1098 as the beginning loan amount. Use the pay amount as the ending loan amount. Add them and divide by 2 and then annualize number of months paid/12. I'll assume paid off in Sep so 9 months. Example calculation. 360K (Box 2 amount) + 355K (payoff)/2 = 357.5 (9/12) = 268,125 average balance. Interest paid from 1098 box 1 (8500 for example).
Loan 2 - Same process. Box 2 amount (1.6M) + end of year balance from 1 Jan 2023 statement (1.55M)/2 = 1.575M (6/12) = 787,500 average balance/2 = 393,750 for your part of average balance. One half of Interest paid from box 1 (15,000 for example).
For you: Add the average balances together. 393,750 + 268,125 = 661,875 is the total average balance. So this is below the loan limit 750,000. The mortgage interest deduction is not limited in this case. If the total average balance were more than $750K you would divide it by $750K to arrive at a ratio to multiply by your share of the interest to arrive at the limited mortgage interest deduction.
TurboTax will calculate that your interest is limited and give you the opportunity to put in an adjusted amount. In the adjustment box you would enter the total of box 1 loan 1 (8500) and 1/2 of box 1 loan 2 (15,000) or the limited amount as applicable.
- "Edit" the "Mortgage Interest" topic
- "Edit" the "Shared" mortgage interest 1098 form entry
- On the "Uncommon Situations" page indicate "Someone Co-owns the loan"
- Answer/enter as needed for your situation.
- Complete the interview section
- If TurboTax limits the deduction as noted above you can enter the adjusted amount based on your calculations.
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