Property tax and mortgage interests for two primary residence

[bl121]

Hi,

  I bought a new house (AKA house A) in June, 2021.  After I bought house A, I have home improvement done and moved to house A in August 2021.

I lived house B for more than 20 years. I put house B on market on September, 2021 and was sold in November 2021.

   Here are my questions:

1. House B is my primary residence in last 20+ years.

For 2021 tax return, which is my primary residence?

Should we treat house B as primary residence for January through July 2021 since I moved to house A in Aug?

This mean we treat house A as primary residence starting from August 2021.

2. Property tax and mortgage interests.

I paid property tax and mortgage interest for house B to cover all way to October (house B was sold in November). I also paid two installments for house A.

I paid mortgage interest for house A staring from June 2021.

    For 2021 tax return, how do I calculate mortgage interest and property tax for my primary residence?

     Assume the following:

House B as primary residence for January through July 2021.

House A as primary residence starting from August 2021.

Here is my formula:

For mortgage interest, first 7 months from house B + remaining 5 months from house A.

For property tax,  paid on house B + 2 installments for house A.

Is that right?

Thanks,

Bob

[FangxiaL]

Your primary residence is your home. By this definition, both were your primary residences for 2021. Is the mortgage loan on the old one more than $1m or on the new one more than $750k? 

[bl121]

Thanks for quick reply!

Old home mortgage loan was less than 1M. The new home loan was over 750K initially, but I refinanced later in 2021 and now loan amount was under 750K.

How about property tax? I already paid property tax for old home and also 2 installments for new home in 2021. Can I deduct these property tax in 2021 tax return?

Thanks again for your help!

[MinhT1 · Accepted solution]

Yes, you can deduct all property taxes actually paid in 2021. But please note the SALT (state and local taxes) deduction is capped at $10,000 ($5,000 if MFS).

[bl121]

Thanks again! 

For mortgage interest, first 7 months from house B + remaining 5 months from house A.

Correct?

Although I sold house B in Nov, 2021, but I moved into house A in August, 2021.

[RaifH]

You can deduct the mortgage interest paid for both houses for the entire year, even if there was some overlap for a couple of months while the first home was on the market and the new home was being readied. You can see more about deducting mortgages on two homes in this TurboTax article. 

Your mortgage interest deduction may be limited if your combined Outstanding Mortgage Principal reported on Box 2 of Form 1098 averaged above $750,000 for the year. The worksheet that will calculate the deductible portion of the mortgage interest automatically is not ready yet, but the system can notify you when it will be ready by signing up here.

[chocy0924]

Hello is this system ready for 2022 filing season?

I have similar situation with the new purchased home mortgage being $1.1 mil

[JosephS1]

 Yes, filing commenced on January 23, 2023.  Your mortgage situation may get complicated based on the amount of mortgage debt on the principal residence.  Mortgage debt cannot exceed $750,000 for full deductibility.  The link below should assist you in calculating the amount of mortgage interest that is currently deductible.

Can I deduct my mortgage interest?

@chocy0924

[Dean_Wormer]

Hello!  I'm in a similar situation.  My spouse & I bought House A (primary residence) in August 2020, then sold it in September 2022.  Box 2 of A's Form 1098 says ~$737,000.  We bought House B (secondary residence which became our primary residence when A was sold) in July 2022.  Box 2 of B's Form 1098 says ~$594,000.  Can we deduct the entire amount of mortgage interest on both houses?  Or is the deductible amount limited because the sum of mortgages exceeds $750,000?  Even if our held mortgages only exceeded that amount for a couple of months?  If so, what is the appropriate formula to calculate the deductible portion of mortgage interest?  Thanks!

[Vanessa A]

You would be able to deduct the full interest on the months that your mortgage did not exceed $750,000.  For the few months that it did exceed the $750,000 limit, your mortgage interest would be limited to just the interest on the $750,000 for those months. 

Example.  January through August you had house A with mortgage of $725,000, selling it on August 31.  July 1, you bought house B and moved into it with a mortgage of $500,000 and owned and lived in that house through the end of the year.

• January through June, you could deduct the full interest on house A
• Sept 1 through December 31, you could deduct the full interest on the $500,000
• For July and August you could take the full interest on the $500,000 for and then you could include the interest on $250,000 of mortgage A

If your interest on Mortgage A was $1,500 for July and August, then you would be able to deduct 33% (250,000/750,000)  of that interest or $500 plus the full interest on Mortgage B. 

[Dean_Wormer]

Thanks, Vanessa!  Clear as crystal.