Calculating Average Mortgage balance for 2 loans

[billab914]

Hi.  I'm trying to figure out how to calculate an average mortgage balance when I bought and sold a house during 2019 in order to complete the adjusted mortgage interest worksheet.  I read the IRS publication on it and it wasn't helpful, it just says generally the dates are first and last of the year when calculating the average but doesn't say when to not use those dates.  Depending on how I do this calculation determines if I need to adjust the interest deduction or not.  Using the balance at first and last of the year lowers my average balance but doing something for partial year raises it above the 750k threshold.  Here is the key info from each loan/home:

Old home -

Originated 9/24/13

Balance on 1/1/19 - $255,365

Sold and closed on 4/5/19 with $249,703 sent as payoff in closing on that day. 

Balance is 0 for rest of year

New home

Originated 2/20/29 with beginning balance $800,000

balance on 12/31/19 - $783,825

[S7ngod]

Your average balance for  2019 is $252,564. To find the average balance you had between january 2019 to the payoff date, simply add the beginning balance to the payoff balance and then divide the result by 2 as there was just 2 numbers used in the initial addition equation.

[NCperson]

use the monthly balance for the 12 months  to strike a 12 point average . use the balances off the monthly servicer statements. 

January would just use the old mortgage in the average

Feb- March would use both balances in the average

April - Dec would use the new mortgage only in the average 

look at page 13 of IRS publication 936.... in the middle of the middle column it states: 

Statements provided by your lender. If you receive monthly statements showing the closing
balance or the average balance for the month, you can use either to figure your average balance
for the year.

because you have those two overlapping months of Feb- March, your average for the year will be over $750,000

thoughts? 

[S7ngod]

Keep in mind that  the average amount in question is the average 'BALANCE' of said mortgage... Not the monthly payment of said mortgage. Also, its not possible to get a result that is greater than the highest number (Monthly balance)  used to in initial calculation. Not possible. If the sum of the count is '0' then the average cannot be a number that is '>' than '0.0' ..,,🌵

[NCperson]

@S7ngod - agreed it's the balances and not the payments...but zeros do not come into play here.  and he could have a balance higher than the SUM of the two mortgages because they are overlapping by two months:

Jan: $255

Feb: $253 + $800

March: $251 + $798

April : $796

May: $794

June: $792

July: $790

Aug: $788

Sept $787

Oct: $786

Nov.: $785

Dec: $784

The average is going to be in and around $788,000 (take the sum of the 12 months and divide by 12)

[S7ngod]

not saying your wrong, but there was no implications about making any monthly payments. Only thing that was mentioned in the question was a 'balance' of the (1 not 2) mortgage on the old home. There was a Balance of $255,356 in January to 'Payoff' the Homestead. Next stated was the payoff amount that he PAID to completely pay off the mortgage, not his monthly payments. If you're to assume that he is paying monthly payments, then you would simply have to subtract - the amount that he paid to PAYOFF the (1) mortgage . Now you have the total Assumed payment that was paid...not including the amount that was paid at close to payoff the (1) mortgage. Divide ÷ that number by 12 and now you have the  average amount paid monthly. If payments were made monthly and still had a balance at the last date that he paid  to close  then must have only paid monthly payments totaling around $5'620. 🐐

[NCperson · Accepted solution]

@S7ngod - maybe you misunderstood - the numbers in my table of 12 months were BALANCES.... not payments... There is nothing in the original question nor my response that had to do with 'payments',  It's all about balances.  The information provided by @billab914  only stated what his balances were and I only responded with balance information.   I didn't add the '000' ... also, that mortgage on the home that was sold, was outstanding for 3 months and has to be part of the average that way. 

Can you please go back and read the original thread? one of us had really read it incorrectly, 

Balances: (I estimated these but it shouldn't materially change the answer of $788,000 average balance)

Jan: $255,000

Feb: $253,000 + $800,000

March: $251,000 + $798,000

April : $796,000

May: $794,000

June: $792,000

July: $790,000

Aug: $788,000

Sept $787,000

Oct: $786,000

Nov.: $785,000

Dec: $784,000

assuming $788,000 is the average for the year, then only $750,000 / $788,000 or 95% of the interest is tax deductible. 

[billab914]

Thank you, I understood what you were saying and it makes sense.  I missed that or misread it in the IRS publication.  Since I'm trying to deduct all interest even when mortgages overlap it makes sense that I should count the average balance when they overlapped as part of my average balance for the year.   

[panchoydalila]

I have the same problem an dam curious with the table made. I the table is correct than hypothetically if I had no home for 6 months and bought a 1.5 million dollar home July 1, then my average acquisition would be 750,000 and all muy mortgage interest would be deductible. I thought the correct way would be to get a ratio every single month and multiply by the monthly interest rate - that sum is the deductible amount. Then how do we enter it in turbo tax?

[panchoydalila]

I have the same problem and am curious with the table made. If the table is correct than hypothetically if I had no home for 6 months and bought a 1.5 million dollar home July 1, then my average acquisition would be 750,000 and all my mortgage interest would be fully deductible. I thought the correct way would be to get a ratio every single month and multiply by the monthly interest rate - that sum is the deductible amount. Then how do we enter it in turbo tax?

[Mike9241]

there are various methods for computing average balance see IRS PUB 936 page 13

https://www.irs.gov/pub/irs-pdf/p936.pdf 

[giantsbaseball]

i had the same issue. anyone figure this out? my though about having no home for 6 months, and then a 1.5mm home loan for the last 6 months, is that you still can only take 750k of that 1.5mm, for those 6 months, not all of it. They're looking for the average of the loans, at the times you had loans, and if at any point in the year, you had over 750k on the books, you can only take the interest on 750k. So even if you had no home all year, and then closed on a home on Dec 31st with a 10 million mortgage, you'd still only be able to deduct one day of interest on 750k. Hoping that's not the case, but am totally not sure and the IRS pubs don't resolve this at all.

[LinaJ2020]

The issue has been submitted and is currently under investigation.  Please click on the following link and sign up for an email notification when it's fixed.  

Limited interest and points must be entered

Home Mortgage interest being limited

Thank You for your patience. 

Your deduction is generally limited if all mortgages used to buy, construct, or improve your first home (and second home if applicable) total more than $1 million ($500,000 if you use married filing separately status) for tax years prior to 2018. Beginning in 2018, this limit is lowered to $750,000. Mortgages that existed as of December 14, 2017 will continue to receive the same tax treatment as under the old rules.

For tax years before 2018, you can also generally deduct interest on home equity debt of up to $100,000 ($50,000 if you're married and file separately) regardless of how you use the loan proceeds.  For details and learn more, click here: Home mortgage interest limitation

[panchoydalila]

Unfortunately TurboTax online can't solve it. The right way to do it is to use the average acquisition method which is interest paid  over the interest rate - as explained in the publication page 13. TurboTax online does not recognize this method  and assumes it was owned longer. I've spoke to a couple of the experts and their only recommendation was to purchase the desktop version and manually override the acquisition value. I'm researching other software which is a bummer since I've been using them for years

[JoeSqee]

I have this same issue and really need TurboTax to update the software so I can file.