How to enter a different average mortgage balance than what TurboTax calculates?

[PatriciaV]

Your calculations look fine. The average balance for the mortgage on your principal residence would be the balance per Form 1098 plus the balance as of 1/1/2023 (the next year) divided by two.

The mortgage on the second home was held for about six months (July - December). Your best option for this loan is to total the mortgage balances for each month, then divide by six.  This average is likely to be the same as (or close to) the average using first + last x months/12. You can try it both ways and use the lower of the two answers.

To calculate the percentage of mortgage interest you can deduct, divide $750,000 by the total of your two average balances. Multiply this percentage by the total interest you paid to calculate your deductible mortgage interest.

Because you incurred debt after 2017, your qualified loan limit is $750,000. Unfortunately, the IRS rules do not allow you to calculate deductible interest for each loan separately, even though they fall under different mortgage limits.

@Marka81 

[edited 4/4/2023 | 1:12 pm to correct instructions for partial year loan]

[Marka81]

@PatriciaV  I am not worried about how to calculate the average for the home that was owned the whole year. I understand that. I am only talking about the home that was owned since June 2022. You said:

• ---

  @PatriciaV wrote:
  

  However, the mortgage on the second home was held for about six months (July - December). Your best option for this loan is to total the mortgage balances for each month, then divide by six. (You wouldn't divide by 12 because you didn't own the home all year.) This average is likely to be the same as (or close to) the average using first + last / 2. You can try it both ways and use the lower of the two answers. 

  This cant be accurate. That is NOT how you calculate the average mortgage balances FOR THE YEAR. Doing it the way you are suggesting would calculate like I was over the 750K limit the entire year which is wrong. I was only over the 750K limit June- December. So 7 months. I did not own the home the entire year, I did not have the outstanding mortgage balance the entire year, I only had it for 7 months within that year. That is exactly why you divide by 12 to get the average for THAT YEAR. My interest deduction should only be limited since June- December, not the entire year. The first home was owned the entire year, and I did not purchase the second home which put me over the limit until June 2022. Thus, the first home Jan- May interest deduction is 100% deductible. What you are suggesting would calculate it like I had both loans outstanding the entire year. I did not. To calculate the average for the year, you count it as zero balance the months the loan was not outstanding. So you total 7 months mortgage balances and 5 zeros ( January- May) and then divide by 12. The average should be average over the year, not over the time of the loan. If the loan that originated in June, it should have average mortgage balance only 1/7th of the loan amount.

Or you take the outstanding mortgage principal in Box 2, multiply that by the number of months you had the loan, then divide by 12. So, for my second home, I will essentially be reporting 1/7 of the amount of mortgage principal since I closed in June. 

The IRS pub explains different methods to calculate the average balance for the year. https://www.irs.gov/publications/p936#en_US_2022_publink[phone number removed]

Interest paid divided by interest rate method.  Mixed-use mortgages.

Some of those methods make is clear that you calculate the average balance for the year, not for the term of the loan. Mixed use mortgages example makes it clear. 

[PatriciaV]

Yes, the calculation should be (first + last) times months/12.
I have corrected the instructions I posted earlier. Thanks for your input.

@Marka81 

[fredericrose]

Should the calculation be ((first + last)/2) times months/12?

I am in the same case:

I had a mortgage balance average of ~ 254K per month until May 2022 (sold that house in May) - this mortgage was started in 2005
I bought a new house in April 2022 and had a mortgage averageof ~764K per month from April 2022 - this mortgage had points

overall:
so in Jan-March: 254K per month balance
April and May: 1018K per month
Jun-Dec: 764K per month

is this correct:

mortgage 1 average for the year (254*5)/12 = 63.5K

mortgage 2 average for the year (764*9)/12 = 573K

total average to report: 63.5+573 = 636.5 which is under 750 and result in 100% deduction?

Thanks

[Marka81]

@fredericrose 

You are correct. What @PatriciaV  is saying is still not accurate way to calculate the average for the year. She said "the calculation should be (first + last) times months/12." 

No,that's not how you calculate the average for the year.

You can use your formula  ((first + last)/2) times months/12.

Or I actually just added each month balances and then divided by 12. The result would be the same in both cases.

You can also use Excel to calculate the average. Just enter each month balance and enter zero for the month you didn't have the mortgage, then pick AVG formula from Excel bar. It will calculate it for you. The result will be the same in either case. 

[NCperson]

@Marka81 @fredericrose - there are multiple methods that are acceptable.  

@fredericrose - I also agree your method is correct. 

see page 12. 

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

[Marka81]

@NCperson pb936 does not address how to calculate balances IF the mortgage is obtained mid year or end of the year. All examples and methods the pub 936 explains apply to someone who has a mortgage for the whole year ( 12 months) only. The only one that we could possible apply to our case is the "Mixed-use mortgages" example mentioned, however it talks about grandfather mortgages which isn't applicable in mine or @fredericrose cases either.

The pub 936 does not make it clear how to handle our situations when the mortgage was obtained mid or end of the year, selling and buying, etc. But you can see in that mixed used mortgages example that you calculate the average balance for the year, not for the term of the loan as Patricia originally mentioned. Either way, there are many ways to calculate the average number. It's just simple math, actually. What Patricia suggested is inaccurate and her post is actually confusing and confuses people. She said "(first + last) times months/12"- that is not how you calculate the average number of anything and that would not give you the accurate result either. Maybe, it was her typo but if anything, it should be ((first + last)/2) times months/12 as fredericrose said or just add all monthly balances/12 as I mentioned. That is how you calculate the average number. 

What @fredericrose said is accurate, and what I mentioned is accurate as well. In this case, to calculate average number for the whole year is just simple math.  

[xishuilianzi8]

I got the way how to calculate the average balance after reviewing all the reply. But where to enter the average balance in turbotax?

I am using turbotax premier 2022, other than outstanding balance on 1/1/2023, no other place to enter average balance. Any ideas?