Mortgage Interest Deduction

[SKumf]

I sold my original primary residence and purchased a new house in Sept. 2022.  My original primary residence was purchased in 2016 under the $1 million mortgage limit for deductible mortgage interest and my new home is limited under the $750,000 limit for deductible mortgage interest.  I received (2) 1098 forms from the bank for 2022 paid mortgage interest but Turbotax is averaging the mortgage balances of both mortgages on the mortgage interest deduction worksheet and incorrectly limiting the mortgage interest deduction under one mortgage balance limit and not calculating the mortgage interest deduction separately under $1 million limit for the house we sold and the $750,000 for our new house.  How do I override this calculation to the correct my allowable mortgage interest deduction?  Thanks for your help.

[DMarkM1]

You are correct.  TurboTax does not handle the mortgage interest deduction limitation in a year that both a home is bought and a home is sold, particularly if the loans fall under different limitation years.  

You will need to make some calculations yourself and enter an adjusted interest deduction.  Publication 936, Table 1 (here) provides the formula for calculating a limited mortgage interest deduction. Below is a summary with Table 1 references. 

Keep your calculations with your tax records should it ever come up.  No calculations or mortgage interest worksheets are transmitted with your returns; they are only for the taxpayer's records.     

First, there is only going to be one loan limitation (A) number (line 11); it is going to be the either $1M (lines 3 and 4) or the average loan balance of the oldest loan (line 5) whichever is less (line 6) but not less than $750K (line 8).  

Next you need to figure the average loan balances for each loan (lines 2 and 7) and then add them together for the total average loan balance (B) (line 12).  Publication 936 provides several methods to calculate/determine your average loan balance for a loan.  

Finally, you will divide your loan limit (line 11) by the total average loan balance (line 12) to get a ratio (A/B) (line 14).  That ratio is multiplied by the total amount of interest paid (line 13) from your forms 1098 to arrive at the deductible portion (line 15).

On the page that TurboTax informs you of the limitation there will be an "Adjustment" box (screenshot below).  There you will enter your calculated interest deduction.  

[SKumf]

Thanks for response and insight.  Hopefully Turbotax can correct this in the future.

Scott