Why is my mortgage interest being limited?

[lostone2]

My primary home was purchased in 2021 with a current loan balance of about 613k.  My second home was purchased in 2010 with a current loan balance of about 262k. Both loans from the two separate properties combined is less than $1M.  Why is my total 1098 interest deduction calculated and capped at $20,640 when I paid much more than that in interest combined?  

[zomboo]

The mortgage interest deduction is limited to $750K for 2024, not $1M. If the balances you provided are the averages, your interest deduction is limited to $750K/$875K = 85.7% of the interest you paid.

[lostone2]

I thought that IRS Publication 936 says that mortgage interest from indebtness incurred before December 16, 2017 is subject to the higher limit of 1M?  Wouldn't my second home with the original loan be subjected to the higher limit while the primary home with loan indebtness incurred 2021 be at the 750k limit?  

[zomboo]

Yes, you are correct. I missed that detail in my response. Let's see if I can get this right. The interest on your second home is subject to the $1M and is fully deductible. However it reduces the $750K limit on the primary home by $262K. So the interest on the primary is limited to ($750K-$262)/$613 = 79.6%.

[LindaS5247]

Your mortgage interest for both of your homes (based on the limited information provided) would be limited as follows: The mortgage limitation percentage would be .857 or 750000/875000.  So for example if your total mortgage interest was interest was $52,000 it would be reduced as follows:  $52,000 x .857=$44,564.  Your deductible interest would be $44,564.

The mortgage interest deduction limits are not applied separately to each loan.

If you use the house as a second home interest on the mortgage is deductible within the same limits as the interest on the mortgage on your first home.

• For tax years prior to 2018, you can write off 100% of the interest you pay on up to $1.1 million of debt secured by your first and second homes and used to acquire or improve the properties. This is made up of a maximum of up to $1M of mortgage debt plus a maximum of up to $100k of home equity debt. (That's a total of $1.1 million of debt for all homes, not $1.1 million on each home.) The rules that apply if you rent out the place are discussed later.
• Beginning in 2018, the limit is reduced to $750,000 of debt secured by your first and second home for binding contracts or loans originated after December 16, 2017.
• For loans prior to this date, the limit is $1 million ($1.1 million without the $100,000 home equity portion).

This is what the mortgage limitation looks like in TurboTax:

Click here for Publication 936 (2024), Home Mortgage Interest Deduction

Click here for Deducting Mortgage Interest FAQs

Click here for Instructions for Schedule A (2024)