TurboTax isn’t letting me deduct the interest on the 2 primary residences I owned in 2020, seemingly because the total of the balances is over $750,000. I never owned both homes at the same time, I simply sold one abs bought another. I have 3 1098’s for 2020. One, the 1st lean on a primary home I sold in October. Interest was about $22,000 in box 1, then box 2 showing the outstanding balance of 443,713.38 with origination date of 4/30/2018. Second, the 2nd lean on the same property I sold in October with interest of about $4000, and an outstanding balance of $90,000. Finally the 3rd 1098 is for the new purchase. Interest is about $2600, and box 2 reads $510,000 of an outstanding balance abs this home was purchase right after the sale of the other. My question is, shouldn’t I be able to deduct all of this interest since neither home had a mortgage of over 750k? Or should any of the outstanding balances in box 2 say 0? To reflect that one was paid off or that the other didn’t start the year with a balance. I spoke with 2 CPA’s with turbo tax but neither seems to have a definitive answer and recommended posting this here. Help with a certain answer rather than a guess would be appreciated.
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You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017. The limit applies to total Qualifying Loan Balance of all your real estate properties.
Thank you for the reply. So this is a major disadvantage to anyone buying a new home and selling their old one mid year if the mortgages together exceed 750k. Since the interest will basically be split between the 2, but they can only deduct one. I was having trouble understanding the reason for that scenario. You’d think it would be a dollar amount limit instead.
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