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I do not think this person's replay is correct. The instructions and regs talks about the average of the mortgage balance. If you sell one house in August (close say 8/28) and buy another house on the same day, as we did in our case, then the average should be what it is for both houses for the whole year. A beginning balance of one house with a mortgage of say $842,000 to start the year and it being sold at the end of August means it has an average balance for the WHOLE year of $557,290. You need to count the $0 in the months Sept-Dec to get the average. If you then bought another house at the end of August and had a mortgage of $750,000 to start, that average should be around say $250,000 for the whole year, because Jan-Aug it was $0.... You should not be penalized by selling and buying as the $750,000 should be looked at in the whole for each month of the year and compared to your mortgage balance in effect for each month, not in aggregate how much in mortgages did you have outstanding in the year ($842,000 + $750,000).
So I do not think TurboTax is handling it right as I should be able to get a deduction for both mortgages. When I put in my new house's mortgage my tax owed actually went up which is what got me to looking at this...and found this post. So you are going to have to calculate what you think it should be and overwrite the values, which you should be able to do in the PC version of it. Not sure about the online version. It is simple math - get each months statement, plug it into a spreadsheet and calculate the average balance for the WHOLE YEAR for both mortgages...any month without a balance should be $0 and that should factor into the average....its math, that is how it should work.
For the purposes of figuring your deduction amount, you do not count months you had no mortgage as 0 in the average. There are three acceptable methods for determining this balance as outlined in Publication 936.
These options include using the average of first and last balance, the interest paid divided by the interest rate method, or the statements provided by your lender. The last method discusses treating a balance as 0 - but only when the mortgage loan exists but isn't secured by by your home. Otherwise, the months that there was no loan are not used in the calculation (for example if you have no mortgage and no home for two months of the year, then you take your balances each month that you do have a mortgage, and divide by 10, rather than 12 - or whatever number applies in your case.)
The rules do not make sense....I see what they say, but from a logic perspective it does not add up.
if you sold and bought in a year they penalize you it appears with how they are calculating the average mortgage balance. If you had a $1 million mortgage for 1, 3 or 12 months outstanding, it does not matter, they are going to treat it like you had a $1 million mortgage outstanding for the while year...so if you bought a new home and had a $750,000 mortgage, all of that interest would be disallowed in year 1?
That does not make sense and seems to be counter to what the law says - interest on mortgages over $750,000 are disallowed. The use of the $1 million loan for 1 month screws you for the whole year even if you were under the amount for 11 months???
The law does not saw this - the interpretation of the law by the IRS I think is flawed. Remember it is staffers trying to interpret what the law says and that includes regulations...
I guess here you have to do some other calc for days of year associated with ownership...
https://www.law.cornell.edu/cfr/text/26/1.163-10T
Will investigate more....
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