I'm struggling to find an answer to address my scenario, which doesn't feel uncommon, and TT (desktop) seems to be limiting the amount of mortgage interest I can deduct too aggressively, as the home I sold was purchased in November 2017, so all interest should be deductible, and more of my new home's interest seems like it should still be deductible also. Scenario as follows:
Bought new primary home 4/18/2022
Starting principal of $1.05 million
Ending principal balance 12/31/22 of $1.035 million
Paid $1725 in points
Total mortgage interest of $24,000
Sold prior primary home on 9/15/2022
Home was originally purchased in November 2017 (prior to the principal cap changing from $1 million to $750K)
Principal as of 1/1/22 was $516K
Payoff amount was $508,000, paid off on 9/15/22 so ending principal balance on 12/31/22 would be $0
Total 2022 Mortgage Interest was $15,500
TT is calculating only a $20K mortgage interest deduction on $40,000 in mortgage interest payments, despite the mortgage interest deduction I got in 2021, with just 1 home and less interest, was HIGHER at $22K. I would assume that all of my interest on the home i sold is deductible, as the principal is under the cap, and only part of my new home's interest is deductible, as the principal is over the $750K cap, but I can't seem to figure out the right way to calculate this to be accurate and to maximize my mortgage interest deduction.
The software notes that TT is limited in its ability to solve for the buy and sell a home in the same year, so any help would be much appreciated!
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Using the numbers you provided and Table 1 in Publication 936 the deductible mortgage interest is 27,413 plus the deductible points.
Step 1 is to get the average mortgage balance for each loan.
Newest loan total first and last balances for the year and divide by 2 = 1,045,000; you paid on that loan for 8 months so 1,045,000 (8/12) = 696,670 average loan balance
Same process for the old loan you paid for 9 months. 516 + 508 = 1024/2 = 512
512 (9/12) = 384 average loan balance
Step 2 is find the loan limit using Table 1. When you plug in the loan balances above you will find that $750K is your limit because the oldest loan balance is actually less than $750K.
Back to Table 1, add the loan balances together to get 1,080,670. 750,000/1,080,670 = .694 x interest paid 39500 = 27,413
Assuming you can and are deducting all your points on the new loan this year the total deduction in your scenario would be 1725 + 27413 = 29,138
If you deducting points over the life of the loan then add the prorated points to the mortgage interest.
That number can be put in the "Your adjustments" box to override the TurboTax calculations. Be sure to keep your calculations with your tax records.
Using the numbers you provided and Table 1 in Publication 936 the deductible mortgage interest is 27,413 plus the deductible points.
Step 1 is to get the average mortgage balance for each loan.
Newest loan total first and last balances for the year and divide by 2 = 1,045,000; you paid on that loan for 8 months so 1,045,000 (8/12) = 696,670 average loan balance
Same process for the old loan you paid for 9 months. 516 + 508 = 1024/2 = 512
512 (9/12) = 384 average loan balance
Step 2 is find the loan limit using Table 1. When you plug in the loan balances above you will find that $750K is your limit because the oldest loan balance is actually less than $750K.
Back to Table 1, add the loan balances together to get 1,080,670. 750,000/1,080,670 = .694 x interest paid 39500 = 27,413
Assuming you can and are deducting all your points on the new loan this year the total deduction in your scenario would be 1725 + 27413 = 29,138
If you deducting points over the life of the loan then add the prorated points to the mortgage interest.
That number can be put in the "Your adjustments" box to override the TurboTax calculations. Be sure to keep your calculations with your tax records.
Thank you! Are the points fully deductible or do they need to also be discounted by the same 0.694 ratio?
Yes, the points would need to be discounted by the same .694 ratio. as the mortgage interest is discounted. Basically, your points are deductible to the point that your interest is deductible.
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