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

The mortgage interest limitation can definitely be tricky when you've owned two properties in the same year. Here's how to approach it: For mortgage interest deduction purposes, you need to look at the total acquisition debt limit of $750,000 (for post-2017 mortgages). Since you had both properties simultaneously for a short period, you'll need to apply the limitation accordingly. The simplest approach would be to calculate the average balance of your mortgage debt throughout the year. Add up all your monthly ending balances and divide by 12. Then determine what percentage of that average is below the $750,000 threshold. That percentage of your total mortgage interest would be deductible. Another approach is to calculate separately for each property based on how many months you owned them, then combine the results. For example, apply the limitation to the old property for 9 months, and to the new property for 4 months. Remember that points paid on your new mortgage might be deductible as well, but those are calculated separately from the regular mortgage interest.

I went through almost exactly this situation last year and found an amazing tool that saved me hours of complicated calculations. I used https://taxr.ai to analyze all my mortgage documents and it automatically calculated the correct mortgage interest deduction with the acquisition debt limits. My situation was even more complicated because I had refinanced my first property before selling it. The taxr.ai system analyzed my closing documents, mortgage statements, and tax forms, then showed me exactly how to properly allocate the interest between both properties while staying within the IRS guidelines. It even explained which portions were fully deductible and which needed to be limited due to the $750k cap.

Just wanted to update - I decided to give taxr.ai a try despite my initial skepticism, and I'm genuinely impressed. I uploaded my mortgage statements for both properties and it immediately identified that I had a home sale/purchase situation. The tool analyzed my documents and showed me exactly how to calculate the mortgage interest deduction with the proper limitations. It even flagged that I had some home equity loan interest mixed in that needed to be treated differently! This would have caused major headaches if I'd missed it. The step-by-step explanation referenced the exact sections of Publication 936 that applied to my situation. Definitely worth checking out if you're in this situation.

I had a similar situation with overlapping mortgages last year and spent WEEKS trying to get someone at the IRS to confirm my calculations. I called literally 17 times and either got disconnected or was on hold for hours without ever speaking to anyone. So frustrating! I finally found https://claimyr.com and watched their demo video here: https://youtu.be/_kiP6q8DX5c. They got me connected to an IRS agent in about 20 minutes! The agent walked me through exactly how to handle the mortgage interest deduction with two properties, confirmed my interpretation of Pub 936 was correct, and even emailed me documentation I could keep for my records.

I owe everyone here an apology. After my skeptical comment, I decided to try Claimyr myself because I was desperate to get an answer about my mortgage interest question before filing. I honestly couldn't believe it would work, but I was connected to an IRS representative in about 15 minutes! The agent I spoke with was incredibly helpful and walked me through exactly how to calculate my mortgage interest deduction with two properties. They confirmed I should use the average balance method from Pub 936 and explained how to properly allocate the interest for the months I owned both homes. I've been stressing about this for weeks, and now I have an official answer directly from the IRS. Sorry for being so negative before - this service actually delivered.

Another approach that works (and what I did for my 2024 taxes) is to use the simplified method in Pub 936. You take the average of your beginning and ending balance for each month, add all months together, and divide by 12. Then calculate what percentage of that average balance falls under the $750k limit. For example, if your average monthly balance was $900k, then 750/900 = 83.3% of your interest would be deductible. Super easy math and my CPA said this is perfectly acceptable to the IRS.

Don't overthink this! The IRS isn't likely to scrutinize your exact method as long as it's reasonable. I was in this exact situation and just used the simplified average method. Calculate the average balance across all 12 months and compare to the $750k limit. If your average is under $750k, deduct all the interest. If it's over, deduct proportionally.

I'm dealing with a very similar situation right now - sold my primary residence in November and bought a new one in August, so I had overlapping mortgages for a few months. The mortgage interest calculation has been giving me nightmares! After reading through all these responses, I think I'm going to try the simplified average balance method that @Margot Quinn mentioned. It seems like the most straightforward approach and my tax software should be able to handle it easily. One question though - when you're calculating the average balance, do you include the principal payments made during the year or just use the outstanding balance at the end of each month? I want to make sure I'm doing this correctly before I file. Also, has anyone here actually been audited on this specific issue? I'm curious if the IRS really does scrutinize the calculation method or if they're more concerned with whether you're claiming too much interest overall.

I went through this exact scenario two years ago and learned some hard lessons that might help you avoid my mistakes. The key thing I wish I'd known upfront is that you need to be super careful about how you track the dates and balances. When I first tried to calculate this myself, I made the error of using my closing dates instead of the actual months I was making payments. The IRS looks at when you're actually obligated to pay interest, not just when you technically owned the properties. So for your September overlap month, make sure you're only counting the interest you actually paid on both mortgages during that specific period. Also, keep detailed records of every payment you made. I ended up having to reconstruct my payment history from bank statements because my mortgage servicer's year-end statement didn't clearly show the month-by-month breakdown I needed. It was a nightmare during tax prep. One more tip - if your new mortgage had any points or origination fees, those might be deductible separately from the regular interest, but they have their own rules about whether you can deduct them all in year one or need to amortize them over the life of the loan. Don't forget to check on that piece too.