For Mortgage more than 750k acquired after Dec 2017, what is the right way to calculate allowable mortgage interest amount?
I believe it is 750k/(mortgage amount) * mortgage interest paid.
However, the question is on 'mortgage amount'. I see turbotax is taking the mortgage outstanding at the start of the year for the denominator.
I believe IRS allows for the "average of mortgage amount beginning of the tax year and end of tax year". That works out to be lower denominator and hence more allowable itemized deduction. Why is Turbotax not taking average but the beginning of the year mortgage amount?
TurboTax will use the amount entered on your form 1098 issued by the mortgage company. If you want to change that amount in order to get more favorable treatment then you can do so but document the formulas that you use.
Hello Robert,
Am I right in the belief that IRS allows for average mortgage amount for determining the allowable amount?
I am basing it on IRS.gov/Pub936, (Page 11/12)
7. Enter the average balance of all your home acquisition debt incurred after December 15, 2017. See the line 7 instructions.
Average of first and last balance method.
You can use this method if all the following apply.
• You didn't borrow any new amounts on the mortgage during the year. (This doesn't include borrowing the original mortgage amount.)
• You didn't prepay more than 1 month's principal during the year. (This includes prepayment by refinancing your home or by applying proceeds from its sale.)
• You had to make level payments at fixed equal intervals on at least a semi-annual basis. You treat your payments as level even if they were adjusted from time to time because of changes in the interest rate.
To figure your average balance, complete the following worksheet.
1. Enter the balance as of the first day of the year that the mortgage was secured by your qualified home during the year (generally, January 1) ........
2. Enter the balance as of the last day of the year that the mortgage was secured by your qualified home during the year (generally, December 31) .....
3. Add amounts on lines 1 and 2 ..........................
4. Divide the amount on line 3 by 2.0. Enter the result ..........
Sure. But if there is ever a question about it you want to be able to show the proof of what the average was and what you used to calculate the average.