You can only deduct the interest on $750,000 of mortgage debt. Lets say your average mortgage balance during 2018 was $1 million, and you paid $40,000 in interest. You would be able to deduct 3/4 (750,000 / 1,000,000) of your interest or $30,000.
Thank you. For purposes of computing my average mortgage balance for my condo, do I add (1) the balance as of the date I started renting the condo or (2) the balance as of 12/31/18 to the balance as of 1/1/18 (and then divide by 2)?
Your condo does not factor in to the calculation if it is a rental. The interest on your rental is a valid rental expense regardless of the amount. Only your primary residence and, if applicable, a second home are factored in to the maximum mortgage interest deduction.