How to calculate mortgage interest deduction limit with two properties - Pub 936 question

Thanks for the explanation, but I'm still confused about one thing - do I need to track this monthly or can I just use the beginning and ending balances for the year? Also, does it matter that my new home's mortgage exceeds the $750k limit while my old one was under it?

For the most accurate calculation, tracking monthly is better than just using beginning and ending balances. Monthly tracking gives you a true picture of your average mortgage balance throughout the year. Yes, it does matter that your new mortgage exceeds the $750k limit while the old one was under. For the months you only had the old mortgage (January through August), you can deduct 100% of that interest since it was under the limit. For September when you had both, you'll need to apply the limitation since your combined balance exceeded $750k. Then for October through December, you'll need to apply a partial limitation, deducting only the interest that relates to the first $750k of your new mortgage balance.

Does this taxr.ai thing work if I have rental properties too? I've got my primary residence plus two rentals and my CPA seems confused about how to handle the mortgage interest properly across all three.

I'm skeptical about using a tool like this. How do you know it's applying the rules correctly? I'd be worried about trusting my tax deductions to some random website. Did you verify the calculations it gave you?

Yes, it absolutely works with rental properties too. The system categorizes each property and applies the right rules for each type. For rentals, it handles the mortgage interest as a business expense rather than a Schedule A deduction, and it knows to apply the different limitations accordingly. I totally understand the skepticism! I actually ran the numbers manually first and then compared them to what taxr.ai calculated. They matched perfectly, but the tool saved me hours of work and explained certain nuances I hadn't considered. It also provided documentation showing exactly how each calculation was performed with references to the specific IRS rules that applied.

How does this Claimyr thing actually work? Is it just a fancy way to call the IRS or do they do something special? The IRS wait times are ridiculous - I tried calling about my mortgage interest question last week and gave up after an hour on hold.

Yeah right. There's no way anyone can get through to the IRS that fast. I've been trying for months about a simple question. Either you got incredibly lucky or this is some kind of scam. How much did they charge you for this "miracle" service?

It's actually pretty straightforward - they use technology that monitors the IRS phone lines and joins the queue for you. When an agent is about to answer, they call you and connect you directly. So you don't have to wait on hold personally - their system does it for you. I was super skeptical at first too. But I had already wasted so many hours trying to get through that I figured it was worth a try. And yes, I really did get connected in about 20 minutes. It wasn't luck - they have data on the best times to call and their system optimizes for that. The IRS agent I spoke with was really helpful and confirmed exactly how to handle my overlapping mortgage interest situation.

Would this still work if you had a HELOC on one of the properties? I'm in a similar situation but also have a home equity line that I used for home improvements on the property I sold.

Yes, it would still work with a HELOC, but there's an important distinction to make. If the HELOC was used for home improvements on the property it's secured by, then it's treated as acquisition debt and subject to the same $750k limit when combined with your main mortgage. If the HELOC was used for anything else (like paying off credit cards or buying a car), then it's considered home equity debt, and the interest is no longer deductible at all since the 2018 tax law changes.

I heard from a tax preparer that the IRS actually does care about the exact method, especially if you're audited. Is there an "official" way that's considered safest?

I should clarify - the IRS cares that you use a reasonable and consistent method, but Publication 936 actually allows for different approaches as long as they're reasonable. The audit risk comes from not having any method at all or deducting interest you aren't entitled to. The "safest" approach is to use one of the specific methods outlined in Publication 936 - either the simplified average balance method or the exact calculation method where you apply the limitation separately for each month. Both are explicitly approved by the IRS. Just be sure you can explain and document whichever method you choose.

This is incredibly helpful advice, thank you! I'm just starting to work through my mortgage interest calculations and I hadn't even thought about the distinction between ownership dates vs. payment dates. That could have really tripped me up. Quick question about the points you mentioned - if I paid points on my new mortgage in September, but the loan was for more than $750k, do I need to apply the same proportional limitation to the points deduction? Or are points treated differently than regular mortgage interest when it comes to the debt limit? Also, did you end up using one of the online tools that others mentioned, or did you stick with manual calculations after learning from your initial mistakes?

Great question about the points! Yes, you do need to apply the same proportional limitation to points that you apply to regular mortgage interest. The IRS treats points as prepaid interest, so they're subject to the same $750k acquisition debt limit. If your mortgage was $1.48 million and you can only deduct interest on the first $750k, then you'd multiply your points by 750/1480 = 50.7% to get the deductible portion. After my initial disaster with manual calculations, I actually did try one of the tools mentioned here. I used taxr.ai and found it really helpful for double-checking my work. It caught a couple of nuances I had missed, like properly handling the transition month when I had both mortgages. The tool showed me exactly how to allocate the interest and points proportionally, and it provided documentation I could keep for my records. Definitely worth the peace of mind, especially when dealing with these complex overlapping mortgage situations. Just make sure whatever method you use, you keep detailed records of how you calculated everything. The IRS wants to see that you had a reasonable, consistent approach.

Great question about the points! Yes, you do need to apply the same proportional limitation to points that you apply to regular mortgage interest. The IRS treats points as prepaid interest, so they're subject to the same $750k acquisition debt limit. So if your new mortgage was $1.4M and you can only deduct interest on the first $750k (about 54%), then you'd only be able to deduct 54% of the points you paid as well. The rest would need to be amortized over the life of the loan, but again, only the proportional amount each year. After my initial struggles with manual calculations, I actually did end up trying one of the tax software tools that specializes in complex mortgage situations. It saved me tons of time and helped me catch some nuances I would have missed. The key is making sure whatever method you use, you can explain it clearly and have documentation to back it up if needed. Keep good records of everything - your closing statements, monthly mortgage statements, and any correspondence with your lenders. The IRS may not audit this frequently, but if they do, you want to be prepared!

Great question about the points! Yes, points are subject to the same debt limitation rules as regular mortgage interest. If your mortgage exceeds the $750k acquisition debt limit, you need to apply the same proportional calculation to any points you paid. So if only 75% of your mortgage balance is within the deductible limit, then only 75% of the points would be deductible in the current year. After my initial mess-up, I ended up doing the calculations manually but used a detailed spreadsheet to track everything month by month. I wanted to make sure I understood exactly how the numbers worked in case I ever got questioned about it. The manual approach took longer but gave me confidence that everything was correct. That said, after seeing all the positive feedback about taxr.ai in this thread, I'm definitely going to check it out for this year's taxes. If it can handle the complex scenarios accurately and provide the documentation to back up the calculations, it could save a lot of time while still giving you the detailed understanding you need.

Great question about the points! Yes, if your mortgage exceeds the $750k acquisition debt limit, you do need to apply the same proportional limitation to points that you apply to the regular mortgage interest. Points are treated as prepaid mortgage interest, so they're subject to the same debt limitations. For example, if only 75% of your mortgage interest is deductible due to the debt limit, then only 75% of your points would be deductible in the first year as well. The IRS doesn't give points any special treatment when it comes to the acquisition debt cap. After my initial mistakes, I actually ended up using a combination approach. I did the manual calculations first to make sure I understood all the moving pieces, then used one of the online tools as a double-check. The tool caught a couple of small errors in my math and helped me organize everything in a format that was easy to include with my tax return. Having both the manual understanding AND the tool verification gave me confidence that everything was correct.

Great question about the points! Yes, you do need to apply the same proportional limitation to points that you apply to regular mortgage interest. The IRS treats points as prepaid interest, so they're subject to the same $750k acquisition debt limit. If your mortgage exceeds that threshold, you can only deduct the portion of points that relates to the first $750k of debt. After my initial manual calculation disaster, I actually did try one of the automated tools (not the specific ones mentioned here, but a similar service). It was honestly a huge relief - the tool caught several nuances I had missed and provided clear documentation showing exactly how each part of the calculation worked. The time savings alone made it worthwhile, plus I had much more confidence that I was doing everything correctly. Just make sure whatever approach you use, you keep detailed records of your methodology and all supporting documents. The IRS loves consistency and good documentation if they ever have questions about your deduction.

Great question about the points! Yes, you do need to apply the same proportional limitation to points that you apply to regular mortgage interest. Points are treated as prepaid mortgage interest, so they're subject to the same $750k acquisition debt limit. If your new mortgage was above the limit, you'd only be able to deduct the portion of points that relates to the first $750k of debt. After my initial mess-up, I actually ended up doing the calculations manually because I wanted to fully understand how everything worked. But honestly, after seeing all the positive feedback about taxr.ai in this thread, I'm kicking myself for not knowing about it back then. Would have saved me hours of spreadsheet work and probably caught some nuances I missed. One more thing to watch out for - make sure you're not double-counting any interest or points that might appear on multiple forms. Sometimes mortgage servicers report things differently than you'd expect, especially during transition months when you're dealing with payoffs and new loans.

Great question about the points! Yes, points are subject to the same debt limitation rules as regular mortgage interest. If your new mortgage exceeds the $750k limit, you'll need to apply the same proportional limitation to any points you paid. So if only 75% of your mortgage balance falls under the limit, then only 75% of the points would be deductible. After my initial mistakes, I actually did end up trying one of the calculation tools someone mentioned here (I think it was taxr.ai). It definitely helped catch some nuances I had missed, especially around the timing issues I mentioned. The tool automatically applied the debt limitations correctly and showed me exactly how to allocate everything month by month. That said, I'd still recommend understanding the calculations manually first so you can verify that any tool you use is giving you reasonable results. The peace of mind of knowing the methodology yourself is worth the extra effort, especially if you ever get audited and need to explain your approach.

Great question about the points! Yes, you absolutely need to apply the same proportional limitation to points that you do to regular mortgage interest. Since points are technically prepaid interest, they fall under the same $750k acquisition debt limit. So if your new mortgage exceeds $750k, you can only deduct the portion of points that relates to the first $750k of the loan balance. After my initial disaster with manual calculations, I actually did end up trying one of the online tools (not the ones mentioned here, but a similar service). It was honestly a lifesaver and caught several nuances I would have missed. The tool automatically applied the debt limitation to both my regular interest AND the points I paid, and it properly allocated everything across the months I owned each property. My advice would be to try the manual calculation first so you understand the concepts, then use a tool to double-check your work. That way you're not blindly trusting software, but you're also not missing anything important. The peace of mind was worth it, especially since mortgage interest is usually one of your largest deductions.

Great question about the points! Yes, you do need to apply the same proportional limitation to points that you apply to regular mortgage interest. Points are considered prepaid interest, so they're subject to the same $750k acquisition debt limit. If your new mortgage exceeds the limit, you can only deduct the portion of points that relates to the first $750k of debt. So if your new mortgage was $1.5M and you paid $15k in points, you'd only be able to deduct $7.5k of those points ($15k × $750k/$1.5M = 50%). The same math applies whether you're deducting the points all in year one or amortizing them over the loan term. After my initial mess-up, I actually did end up trying one of those online tools (not the ones mentioned here, but a similar service). It was helpful for double-checking my manual calculations, but I still recommend doing the math yourself first so you understand exactly what's happening. The tools are great for validation, but you want to make sure you can explain your methodology if the IRS ever asks. Also keep in mind that if you refinance that new mortgage later, any remaining unamortized points from the original loan might become fully deductible in the year you refi. It's worth tracking even the non-deductible portion for future reference.

Great question about the points! Yes, you do need to apply the same proportional limitation to points that you apply to regular mortgage interest. Points are considered prepaid interest, so they fall under the same $750k acquisition debt limit rules. If your new mortgage was above the limit, you'd only be able to deduct the portion of points that corresponds to the first $750k of debt. For example, if your new mortgage was $1.5M and you paid $15k in points, you could only deduct $7,500 in points ($15k × $750k/$1.5M = $7,500). The calculation gets a bit more complex when you have overlapping mortgages, but the same proportional approach applies. After my initial struggles, I actually ended up doing the calculations manually because I wanted to fully understand the process. But honestly, if I had to do it again today, I'd probably try one of those automated tools that others mentioned just to double-check my work. The manual approach taught me a lot, but it was incredibly time-consuming and stressful. Make sure you keep documentation of exactly how you calculated everything - the IRS loves to see your methodology if they ever have questions!

Great question about the points! Yes, you do need to apply the same proportional limitation to points that you apply to regular mortgage interest. The IRS treats points as prepaid interest, so they're subject to the same $750k acquisition debt limit. In your case, if your new mortgage exceeds the limit, you'd only be able to deduct the portion of points that relates to the first $750k of the loan. After my initial mess-up, I actually ended up using both manual calculations AND one of the online tools as a double-check. I did the math myself using the simplified average method, then ran it through a tax software program to verify my numbers matched. Having that confirmation gave me a lot more confidence when I filed. The key lesson I learned is that it's worth taking the extra time upfront to get organized rather than trying to rush through it. These mortgage interest calculations can get complex quickly, especially with overlapping properties, but if you're methodical about it, it's totally manageable.

Great question about the points! Yes, you do need to apply the same proportional limitation to points that you apply to regular mortgage interest. Points are considered prepaid interest, so they follow the same $750k acquisition debt limit rules. If your mortgage was above the limit, you'd only be able to deduct the portion of points that relates to the first $750k of debt. After my initial mess-up, I ended up doing the calculations manually because I wanted to really understand the process. But honestly, if I had to do it again today, I'd probably try one of those tools that @Carmella Fromis and others mentioned. The manual approach taught me a lot, but it was incredibly time-consuming and I was constantly second-guessing myself. One thing I learned is that the IRS instructions in Pub 936 are actually pretty clear once you sit down and really read through them step by step. The key is just being methodical about tracking your balances and payments month by month. Don t'try to shortcut it or you ll'end up like I did, having to redo everything during tax season.

Great question about the points! Yes, you do need to apply the same proportional limitation to points that you apply to regular mortgage interest. Points are considered prepaid interest, so they're subject to the same $750k acquisition debt limit. If your new mortgage exceeds the limit, you can only deduct the portion of points that relates to the first $750k of debt. So if your new mortgage was $1.5M and you paid $15,000 in points, you could only deduct $7,500 in points ($15,000 × $750k/$1.5M = $7,500). The calculation works the same way as your regular monthly interest payments. After my initial mistakes, I actually did end up trying one of the online tools that was mentioned earlier in this thread. It definitely helped catch some nuances I had missed, especially around the points calculation and making sure I was applying the limitation correctly during the overlap period. But I also kept my manual spreadsheet as a backup to verify everything made sense. Having both approaches gave me confidence that I was doing it right the second time around.

Great question about the points! Yes, you do need to apply the same proportional limitation to points that you apply to regular mortgage interest. Points are considered prepaid interest, so they fall under the same $750k acquisition debt limit rules. So if your new mortgage was above $750k and you can only deduct, say, 75% of your regular mortgage interest due to the debt limit, then you'd also only be able to deduct 75% of the points you paid. After my initial mistakes, I ended up doing the calculations manually because I wanted to fully understand the process. But honestly, after seeing all the discussion about taxr.ai in this thread, I'm kind of wishing I'd known about tools like that back then! It would have saved me a lot of headaches and probably caught some nuances I missed. The manual approach works fine if you're comfortable with spreadsheets and have the time, but these specialized tools seem like they could be worth it for the peace of mind and time savings.

Great question about the points! Yes, you do need to apply the same proportional limitation to points that you apply to regular mortgage interest. If your mortgage exceeds the $750k acquisition debt limit, then only the portion of points that relates to the first $750k of debt is deductible. So if your new mortgage was $1.5 million, you'd only be able to deduct 50% of the points you paid ($750k ÷ $1.5M = 50%). After my initial manual calculation disaster, I actually ended up using a combination approach. I did the basic math myself to understand how it worked, then used TurboTax's mortgage interest interview to double-check my numbers. The software was pretty good at walking through the debt limitation calculations, though I still had to input all the monthly balance data manually. One thing to watch out for - some tax software doesn't handle the overlapping mortgage situation perfectly, so it's worth spot-checking the final numbers against your own calculations to make sure they make sense.

Great question about the points! Yes, if your new mortgage exceeds the $750k acquisition debt limit, you do need to apply the same proportional limitation to points that you paid. Points are treated as prepaid mortgage interest, so they follow the same rules as regular mortgage interest when it comes to the debt limitation. So if your new mortgage was $1.4 million (like in the original example), you'd only be able to deduct about 54% of the points you paid ($750k ÷ $1.4M = ~54%). The remaining points would need to be amortized over the life of the loan, but still subject to the same limitation each year. After my initial mess-up, I actually did try one of those automated tools someone mentioned earlier, and it was honestly a lifesaver. It caught several nuances I would have missed, including properly handling the points limitation. But I still recommend doing at least a rough manual calculation first so you understand the logic before trusting any tool with your actual tax filing.

Great question about the points! Yes, if your new mortgage exceeds the $750k acquisition debt limit, you do need to apply the same proportional limitation to any deductible points. The IRS treats points as prepaid interest, so they're subject to the same debt limitations as regular mortgage interest payments. So if your new mortgage was $1.5M and you paid $15k in points, you'd only be able to deduct the portion that relates to the first $750k of debt - which would be 50% or $7.5k in this example. The good news is that any non-deductible portion of the points can usually be amortized over the life of the loan instead of being lost completely. After my initial mess-up, I ended up doing the calculations manually because I wanted to understand exactly how everything worked. But honestly, if I had to do it again today, I'd probably try one of those automated tools that others mentioned just to double-check my work. Manual calculation taught me a lot, but it was definitely time-consuming and stressful during tax season!

Great question about the points! Yes, points are subject to the same debt limitation as regular mortgage interest. If your new mortgage exceeded the $750k limit, you'd need to apply the same proportional calculation to any deductible points. So if only 75% of your mortgage interest is deductible due to the debt limit, then only 75% of your points would be deductible too. After my initial mistakes, I actually ended up doing the calculations manually because I wanted to understand exactly how everything worked. But honestly, after reading through this thread, I'm kind of wishing I had known about some of these tools back then! The manual approach taught me a lot, but it was definitely time-consuming. One thing to watch out for with points - if you can deduct them all in year one, that's usually better than amortizing them over the loan term. But the rules can be tricky depending on whether it's a purchase, refinance, or if you're buying down the rate vs paying origination fees. @f3afee8a0bac - did you run into any issues with points on your mortgages, or was it mainly just the regular interest calculation that gave you trouble?

Great question about the points! Yes, you absolutely need to apply the same proportional limitation to points that you do to regular mortgage interest. Since points are considered prepaid mortgage interest, they follow the same $750k acquisition debt limit rules. So if your new mortgage was above $750k, you'd only be able to deduct the portion of points that corresponds to the first $750k of the loan. After my initial mess-up, I actually ended up using both approaches - I did the manual calculations first to make sure I understood the rules, then used one of the online tools to double-check my work. Having that verification gave me a lot more confidence when filing. The tool also caught a small error I'd made in one of my monthly calculations that would have cost me about $200 in deductions. One thing to watch out for with points - if you're using the simplified average balance method for your regular interest, make sure you apply the same limitation methodology to your points. Don't mix and match calculation methods, as that could raise red flags if you're ever audited.

Yes, points are subject to the same debt limitation rules as regular mortgage interest! If your mortgage exceeds the $750k acquisition debt limit, you need to apply the same proportional calculation to any points you paid. So if only 75% of your mortgage balance is deductible due to the limit, then only 75% of your points would be deductible too. After my initial mess-up, I actually did try one of the automated tools mentioned here and it was a lifesaver. It caught several nuances I would have missed doing it manually - like properly allocating the points and making sure I was applying the right dates for when payments were actually due versus when I closed on each property. The tool also helped me realize that some of my September payments were actually for August interest (since mortgage payments are typically made in arrears), which affected how I needed to calculate the overlap period. These kinds of timing details can really throw off your calculations if you're not careful about them.

Great question about the points! Yes, if your mortgage exceeds the $750k acquisition debt limit, you do need to apply the same proportional limitation to any points you paid. The IRS treats points as prepaid mortgage interest, so they're subject to the same debt limitations as regular mortgage interest payments. For example, if only 75% of your mortgage balance falls under the $750k limit, then only 75% of the points would be deductible in the year you paid them (assuming you qualify for immediate deduction rather than amortization). After my initial mess-up, I ended up doing the calculations manually because I wanted to understand exactly how everything worked. But honestly, after reading about the tools mentioned here like taxr.ai, I wish I'd known about them at the time. It would have saved me hours of double-checking my math and cross-referencing Publication 936. The manual approach worked, but it was definitely the hard way to learn! Make sure you keep the HUD-1 or closing disclosure that shows exactly how much you paid in points - you'll need that documentation if you ever get audited.