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Visitor II

Mortgage interest deduction with second home bought in the middle of 2017

I bought a second home in the middle of 2017 which made my total loan exceeds 1 million. When I was trying to figure out my deductible interest payment following Pub 936, I got confused:

 

Say I own a primary home throughout entire 2017, with an average mortgage balance of 0.5 million. I bought a second home on Dec 2017 with 1.5 million loan. According to the instructions on Pub 936, I should put 2 million at line #9 of the worksheet ("total of the average balances of all mortgages"), and then I would only quality for 50% of interested paid in 2017. However, that sounds very unfair since during most of 2017, my loan is under 1M and should be fully deductible.

 

Should I ignore Pub 936 and work out the deductible interest month-to-month?

3 Comments
TurboTax Specialist

Mortgage interest deduction with second home bought in the middle of 2017

Follow the worksheet on page 11. You will need the beginning and ending balances of each loan and be certain to keep a copy of the worksheet for your records should the IRS inquire.

Visitor II

Mortgage interest deduction with second home bought in the middle of 2017

Let me use a simple example:
 - I kept my first home throughout 2017 with and average balance of 0.5m. This part is clear.
- My second home was bought on December, so only have one interest payment with principal balance of 1.5M. 

What is my average balance of the year?

 

I can see two different ways of calculating it:

Approach 1: avg(home1) = 0.5M, avg(home2) = 1.5M / 1 => avg(total) = 2M

Approach 2: avg(both homes) = (0.5*12 + 1.5) / 12 = 0.625M

 

TurboTax Specialist

Mortgage interest deduction with second home bought in the middle of 2017

Complete the calculation using the worksheet provided in the IRS Pub 936. The worksheet calculation is the one that the IRS will accept.

 

IRS Pub 936