New Home Purchased with Mortgage on 12/30/25 with Current Home Being Sold In Following Year

[memjewels]

Hi

I purchased a new home on 12/30/25 and took out a mortgage and paid points at closing.  Our current home which we lived in for all of 2025 has been listed for sale in mid-January 2026 but not sold at this point.  We moved into the new home in early January 2026 and USPS change of address, drivers license change, etc. has been completed.  I received two separate 1098 tax forms from my mortgage company reporting interest (new home for 2 days and current home for full year).  My questions are:

1.  Which home do I report on 2025 tax return as being our main/primary residence?  Does this determination limit any interest, tax deductions?

2.  We paid $4000 of points when we took out the mortgage on the home purchased on 12/30/25.  How does that get reported?  Can I deduct the full amount in 2025 since that property is where I'm currently living and assuming all of the other criteria for full deduction is met?

3.  I am also self-employed and work from home and take the home office deduction.  For 2025, I plan to take a full year of deductions on current home.  In 2026, I will begin taking the office deduction for the new home for a full year and report the capital gain recapture for the current home as it is sold in 2026.  Would this be appropriate?

Normally if the purchase of a new home and sale of the prior home occurred in the same year, the tax reporting is much more clear to me but this scenario is leaving me a bit confused.

Thanks in advance.

[MaxA1]

Answers to your questions below:

1. You should use your new address.  If you enter your old address and the IRS mails you correspondence, it'll take longer for you to get the mail if you already have sold your home by then.  This will not cause any limits on interest deductions.
2. You will report mortgage interest in the Deductions and credits section in TurboTax.  Note that your mortgage interest deduction only comes into play if you are Itemizing your deductions and not taking the Standard Deduction.
3. Correct, use your old home for Office in Home (OIH) deduction for 2025 and use the new home for OIH in 2026.

[memjewels]

Thanks so much for the response!  Your recommendations were the direction I thought I would be taking.  

What is the proper way to calculate average mortgage debt for the year to determine if I fall beneath the $750k limit for interest deduction.  I had two mortgages, one for the prior home for all of 2025 and one mortgage for only a couple of days in 2025?  I'm assuming some type of weighted average but not certain.  Possibly adding up end of month mortgage balances for 2025 and dividing by 12?

Thank you.

[MaxA1 · Accepted solution]

There are three methods to calculate the average mortgage debt balance for the year:

1. Average of first and last balance method.
2. Interest paid divided by interest rate method.
3. Using the statements provided by your lender.

Each method above is linked to the IRS website that explains in more detail how to calculate the amounts.