Mortgage interest deduction over 750k

[hbmonsour]

I have a primary and secondary home with a average 2021 mortgage balance of 870k.

Primary is 700k at 3% and secondary is 170k at 2.1%.

Because of the way turbo tax and the IRS averages this between both loans I've noticed my tax return is better if I simply leave the secondary mortgage interest off my return. Is this allowed?

Can I count 100% of my primary mortgage interest (700k) and then 50k/170k as a percentage of my secondary mortgage interest, instead of averaging over both loans? (This would result in the best return)

[AliciaP1]

No, if you itemize your deductions to claim your mortgage interest, you must report all your outstanding debt and all the interest paid.  So your deduction will be limited due to your outstanding balance.  Also, the IRS will adjust your return if you take the deduction as you have given as an example.

[hbmonsour]

Are you sure I can't do this to avoid treating it as deductible mortage interest? 

Choice to treat the debt as not secured by your home.

You can choose to treat any debt secured by your qualified home as not secured by the home. This treatment begins with the tax year for which you make the choice and continues for all later tax years. You can revoke your choice only with the consent of the IRS.

You may want to treat a debt as not secured by your home if the interest on that debt is fully deductible (for example, as a business expense) whether or not it qualifies as home mortgage interest. This may allow you, if the limits in Part II apply, more of a deduction for interest on other debts that are deductible only as home mortgage interest.

[DMarkM1 · Accepted solution]

You can elect to treat the debt as not secured by the home as you describe.  However, there is something entered that is causing the situation you describe. You at a minimum will get the full deduction of all the mortgage interest amounts on loans below 750,000, if used to buy, build, improve the home. Whether or not you include the 2nd mortgage the interest allocation will cover the amount entered for the primary mortgage 1098.     

If some part of that mortgage was a cash out refinance and the cash was used for something other than to buy, build, or improve the home then that may change the math.

You should delete the 1098 entries and re-enter the information being sure that all the questions are answered to correctly describe the loan situation. 

[hbmonsour]

Thank you everyone for the reply! I think the complication came because I also had to split up my primary mortgage into Two entries because I have a partial year home office which resulted In errors during my entry.