Just want to add another perspective as someone who went through a similar situation. The proportional calculation approach (Option A) is definitely the correct one, as others have confirmed. One thing that helped me was creating a detailed spreadsheet tracking not just the interest payments, but also the original loan amounts, dates, and purposes. This became crucial when I had to prove to the IRS during an audit that my HELOC funds were actually used for home acquisition rather than other purposes. Also, don't forget that you can only benefit from the mortgage interest deduction if your total itemized deductions exceed the standard deduction. With the current standard deduction being quite high, some people find they're better off taking the standard deduction even with substantial mortgage interest. Run the numbers both ways to see what works best for your situation. Keep excellent records of everything - loan documents, closing statements, bank transfers showing how HELOC funds were used. The IRS can be very particular about documentation for mortgage interest deductions, especially with multiple loans.

This is exactly the kind of detailed breakdown I needed! I've been making the same mistake as your Option B thinking - trying to optimize which loans to apply the deduction to first. What really helped clarify this for me is understanding that the IRS treats the $750K limit as applying to the total qualified debt amount, not as a choice of which specific loans to prioritize. So with your $1.9M total debt, you're essentially getting a 39.5% deduction rate across all your qualified interest payments. One thing I'd add for your situation - make sure you have solid documentation that your HELOC was indeed used for the home purchase. Since it sounds like it was part of your original acquisition financing rather than a later equity loan, you should be in good shape. But keep those closing documents and any paperwork showing how the HELOC funds were used in the purchase process. Also worth double-checking the origination dates of your loans against the December 15, 2017 cutoff date that others mentioned. If either loan predates that, you might qualify for more favorable treatment under the old rules.

This is a really interesting case that highlights how family arrangements have evolved! I went through something similar when my adult nephew moved into our guest house with his daughter after his divorce. The IRS Publication 501 specifically addresses this - what matters is whether you're maintaining separate households economically, not whether you share the same street address. Since your ex-SIL has his own bank account, pays for his children's expenses independently, and contributes to household costs through services (childcare and maintenance), he's essentially operating as a separate economic unit. One tip from my experience: I'd suggest documenting the fair market value of the childcare services he provides. In our area, quality after-school care runs about $15-20/hour. If he's watching your kids even 10 hours a week, that's $600-800/month in equivalent rent. Combined with his direct expenses for his kids, he's likely well over the "more than half" threshold for household support. The key is being able to show the IRS that despite sharing a roof, you're running two distinct households with separate finances and responsibilities. Keep good records and you should both be fine filing HOH!

I'm dealing with a very similar situation right now! My brother and his teenage son moved into our converted garage apartment after his job relocation, and we've been wondering about the same HOH question. What really helped me understand this better was looking at IRS Publication 501, which explains that the "household" test isn't about the physical structure but about whether you're maintaining separate economic units. The fact that your ex-SIL pays for his kids' expenses, has separate accounts, and contributes equivalent value through childcare and maintenance really strengthens his case for HOH status. One thing I learned from my research is that the IRS has actually ruled favorably in several cases where family members shared addresses but maintained separate households. As long as you can document that he's covering more than half the cost of supporting his "household" (including the fair market value of his service contributions), you should both be fine filing as HOH. The key is just making sure you both have good documentation - receipts for his kids' expenses, some record of the childcare hours he provides, and maybe a simple written acknowledgment of your arrangement. From everything I've read and researched, sharing an address while maintaining separate economic households is completely legitimate for HOH purposes.

I've used PayPal for my refund twice now and honestly had mixed experiences. First year went smoothly, but second year they did put a temporary hold that lasted about 5 days while they "verified" the deposit. The hold was automatically released, but it was stressful not knowing when I'd get access to my money. If you do decide to go with PayPal, just make sure your account is in good standing and has some transaction history - brand new accounts seem to get flagged more often.

I used PayPal for my refund last year and it was honestly more trouble than it was worth. Like others mentioned, they put a hold on my deposit for "verification" that lasted about a week. The worst part was their customer service - when I called to ask about the hold, they couldn't give me a clear timeline for when it would be released. Ended up switching back to my regular checking account this year. The extra convenience just isn't worth the stress of not knowing when you'll actually get your money!

Quick question - has anyone had success calling their state tax department about duplicate W-2s? My employer made mistakes on my state withholding and I'm wondering if I should talk to the state first before the IRS?

I went through something very similar last year when my employer's payroll system got updated mid-year. What you're describing sounds like a classic state allocation error - your employer probably reported your wages to the wrong state initially (Alabama) and then issued the second W-2 to correct the state reporting to Georgia. The key thing to understand is that you should NOT file with both W-2s. Contact your payroll department immediately and ask them to issue a single corrected W-2 that shows your full federal wages in Box 1 and the correct Georgia state information. Most payroll departments are familiar with this issue and can turn around a corrected form pretty quickly. In the meantime, definitely don't try to force the incomplete W-2 into TurboTax - the IRS computers will flag the mismatch between what your employer reported and what you filed. Better to wait a week or two for the proper correction than deal with IRS notices later.

As someone who works in tax compliance, I want to emphasize a few critical points that haven't been fully covered yet: First, timing matters significantly. You mentioned your son wants to transfer this next month - make sure he understands that large international transfers can take several days to process and may face additional scrutiny from both Thai and US banking authorities. Plan accordingly. Second, document EVERYTHING. Keep records of the relationship between you and your son, the gift letter, all transfer documentation, and any correspondence about the gift. The IRS may request this documentation years later during an audit. Third, consider the gift tax implications on your son's end in Thailand. While you won't owe US tax on receiving the gift, Thailand may have its own rules about large monetary gifts or transfers abroad that your son needs to comply with. Finally, given the substantial amount ($650,000), I'd strongly recommend getting a second opinion from another international tax professional even after you hire the first one. The peace of mind is worth the additional consultation fee when dealing with potential penalties that could reach tens of thousands of dollars for filing errors.

I want to add some perspective as someone who received a large foreign gift two years ago ($350k from my grandmother in the UK). The advice here is all solid, but I want to emphasize how important it is to get ahead of this process early. When I received my gift, I made the mistake of waiting until tax season to deal with Form 3520. By then, I was stressed and rushed, which led to some errors that required amendments. Start looking for that international tax professional NOW, not in March when everyone is swamped. Also, regarding your son in Thailand - have him get a letter from his bank confirming the source of the funds and that it's a legitimate transfer. Some US banks will want to see this to satisfy their anti-money laundering requirements. My UK bank provided something called a "source of funds declaration" that really helped smooth the process on the US side. One more thing - keep digital and physical copies of everything in multiple locations. I lost some paperwork in a computer crash and had to scramble to get duplicates from overseas, which was a nightmare. The IRS can ask for this documentation years later during audits, so treat it like you would any other important financial records. The good news is once you get through the reporting the first time, you'll know exactly what to expect if this ever happens again!