Not necessarily. Once your outstanding mortgage principal exceeds $750,000, or $1 million for homes purchased before December 15, 2017, the portion of your interest that is deductible starts to decrease.
If the mortgage on your second home brought your average above that threshold, it could actually decrease your deductible interest. TurboTax uses the average mortgage balance method to determine your outstanding mortgage principal, a method prescribed by the IRS. It basically takes the balance at the beginning of the year, or in the case of your second home, when the loan originated, and adds that to the balance at the end of the year and divides by two.
The IRS allows another method that will significantly reduce the outstanding mortgage principal on the second home. You can take the average outstanding principal from your monthly statements from your lender. For the months that you did not have your second home from January through October, the balance would be 0. November's will be what is reported on Form 1098 and December you can find on your monthly statement. Basically what you will be reporting as the outstanding mortgage principal will be 1/6 of the amount reported in Box 2 because you only had the home two out of twelve months.
Your outstanding mortgage principal for the second home that you calculate can be reported in Box 2 of Form 1098 rather than what is on the form. Keep records of how you determined your outstanding mortgage principal as well as the monthly statements. The IRS only gets the amount of deductible interest reported to them, not your outstanding mortgage principal so it is okay if you are reporting something different than what is on the form. However, if they were to question you, you would want to have the supporting statements.
