Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
merv
New Member

I received a new mortgage loan on 1/25/18. My mortgage interest was 11,805.61. How do I calculate the mortgage interest that California will allow?

I'm stuck at California "Mortgage interest Adjustment"  

2 Replies
hbl3973
Level 8

I received a new mortgage loan on 1/25/18. My mortgage interest was 11,805.61. How do I calculate the mortgage interest that California will allow?

The issue here is that starting in 2018, mortgage interest deduction at the federal level is allowed only against the first $750,000 of loans taken out after 12/15/2017.  California kept $1,000,000 as that figure.  So if the mortgage balance is more than $750,000, multiply the federal mortgage interest deduction by the ratio of [MIN(Balance,1000000)/750000-1] to get the CA adjustment.  To compute "the" mortgage balance for both federal and state, IRS publication 936 (https://www.irs.gov/pub/irs-pdf/p936.pd) suggests you use an "average balance" as they detail to minimize the value to use in the calculations.


vadimy
Level 2

I received a new mortgage loan on 1/25/18. My mortgage interest was 11,805.61. How do I calculate the mortgage interest that California will allow?

Thank you for providing the formula, I just wanted to double check one aspect of that calculation:

 

Say the total amount of mortgage interest reported on the 1098 forms is  MI, and let us assume that the average loan amount over the course of the year is above the California mortgage deduction limit of $1,000,000.

 

For the Federal mortgage interest deduction, the deductible fraction of MI  is  750,000 / L.  For example for a $1,500,000 loan, MI would have to be multiplied by 0.5 (50%).

 

For California, the deductible fraction is 1,000,000 / L., so  for the same loan, MI would be multiplied by 0.6666 (2/3).

 

The difference between the Federal and California deduction (in terms of dollars) would be:

 

MI * (1,000,000 / L   - 750,000 /L) = MI * (250,000 / L). = MI * 0.16.   E.g. for a Mortgage Interest of $30,000, one could deduct an additional $4,800 on top of the Federal deduction.

 

Is this correct?

 

Thanks in advance!

Dynamic AdsDynamic Ads
Privacy Settings
v