Acquisition Debt Calculation

[bekatz]

I sold my 1st house in 2022 (purchased in 2019 which had loan balance of $361K at payoff.  I then purchased a new home with mortgage of $600K.  TT is calculating the debt for the purpose of interest deduction in excess of the $750K max allowed (ave. balance of 1st home loan & 100% of new loan-not ave.).  It seems incorrect to have TT the amount exceeding $750K when the max. outstanding at any one time being $600K (below the limit).  Does anyone have a suggestion as to how to show this in order to receive the full mortgage interest deduction this year?

Thanks

[DMarkM1]

It appears you sold a home and then purchased another home and both were under the $750,000 limit.  If that is the case your interest would not be limited.  

Edit/Add Mortgage in the Deductions and Credits section.  You should arrive at a page that shows both loans with one of them having a payoff date. The loan paid off should show a balance that was the payoff amount.  The other should be the loan amount at the beginning of tax year 2023 (1 Jan 2023).  If not, edit and fix those. 

Continue.

You now should arrive at page that shows the limitation on your interest.  In the "Your adjustments" box put in the total of your interest from your forms 1098.  Your calculation of the interest deduction will then replace the old calculation. 

[bekatz]

Hello DMarkM1:

I've entered each of the 1098s in the step by step & it's not handling the way you indicated.  Each 1098 has its own Schedule A worksheet & the old loan is averaged but the new loan isn't. I don't see the "your adjustments" box you mentioned.  The page showing both loans together shows the new loan at full value with a 2022 origination date.  I'd be happy to send you copies of the forms I'm looking at if that will help.

Thanks again.

Barry Katz

[DMarkM1 · Accepted solution]

It sounds like you may be in a desktop version.  Be advised the mortgage worksheets are not part of the forms that are filed with the IRS.   Follow these steps to eliminate the limitation on your mortgage interest deduction:

1. Deductions and Credits
2. I'll choose what i work on
3. Update Mortgage Interest topic
4. Delete both 1098s
5. Done
6. Update the Mortgage interest topic
7. Yes
8. Put in old loan first
9. Primary Home 
10. None of the above
11. Enter form information from old loan
12. Continue
13. No points to deduct
14. Yes Most Recent
15. Answer the Refi questions as needed
16. Continue
17. Add a lender
18. Same steps as above for the new loan
19. Continue
20. Done
21. Purchase date of first home should be same as the date in box 3 of 1098
22. Purchase date of new home should be same as date in box 3 of 1098
23. Payoff amount for old home and date of payoff
24. Loan balance on 1 Jan 2023 for new loan; leave date blank. Amount should be less than box 2 on 1098
25. Now you should see the page explaining the limitation
26. You can click the help me with this link and see that if you take your loan balance at the beginning of the year box 2 old loan and add it to the balance of new loan at end of year (loan amount 1 Jan 2023) and then divide by 2 the avg will be below 750,000.  Meaning all of your interest is deductible. 
27. In the "Your Adjustments" box enter the total interest paid for 2022 from box 1 of your 1098s
28. Continue

[bekatz]

Hi DMarkM:

I am using the desktop version.  I’ll try your solution & let you know if it works out.

Thx again.

Barry Katz

[bekatz]

Hi again DMarkM:

I followed your step-by-step & it worked out.  Thanks for your help & patience!!

Barry Katz