turbotax mortgage interest rental property

[xyxiaobai]

In 2022 I bought a new house and rent my previous home out for ~3 month. So I have two 1098s. 

I'd like to deduct mortgage interest for the rental, so I started with schedule E in Turbotax by entering the interest. Let's assume this is $10000. Turbotax then correctly allocates the interest by days rented out. Let's assume $3000 in schedule E and $7000 goes to schedule A. 

Now I have another 1098 that has mortgage interest let's assume $10000, but the loan is after 2017 and over $750,000, so it's correctly adjusted let's say $8000. 

Now on schedule A Turbotax adds the $7000 (from schedule E) and $8000, and says the deduction is $15000. But it seems to me that $7000 should also be limited by $750,000 loan thus should not be added. 

Is this a bug of Turbotax? or am I missing anything?

[DaveF1006]

No, Turbo Tax may have handled this correctly, if your original house was acquired before 2017, because the mortgage limitation before 2017 was $1M. Here is what may have happened in your case. 

The limitation is applied on an average balance between the two loans. If your original house had an outstanding loan balance of $900,000 and your new house had an outstanding balance of $900,000, the average balance is $900,000. for each residence.

If you took out a mortgage on your original home before 2017, the mortgage limitation was $1M. If the average balance is $900,000, then there is no mortgage limitation on that home because the threshold did not exceed the $1M limit.

Since the second loan balance did exceed $750,000, then there is a mortgage limitation applied to the second home. It sounds like this was correctly applied as you mentioned.

Now if the mortgage loan for your original house was originated after 2017 and if the loan balance exceeds $750,000, there may be a problem on how Turbo Tax handled this calculation.

[xyxiaobai]

Hi Dave thank you so much for the reply. So based on what you described, the loans have their limitation separately. However when I was reading the rules of IRS I noticed https://www.irs.gov/publications/p936#:~:text=The%20dollar%20limits%20for%20the%20second%20and%20thi....

it seems to indicate that the limitation applies to loans combined. (For me the new home is main home, and previous home is second home).  Am I missing anything?