How to calculate mortgage interest deduction when buying and selling homes with Pub 936?

So here's my tax dilemma this year. I owned one home from January through March of 2023 with a mortgage of about $320K, which generated interest of around $2,600. Then I sold that house and purchased another home in May 2023 (which I still own) with a mortgage of approximately $795K - racked up about $28K in interest on that one. I've been trying to make sense of Publication 936 but honestly it's doing a terrible job explaining this situation. When I use TurboTax, it wants to combine the two mortgages and calculate something like $750K/(320K+795K) = 67% of total interest as deductible. What I think makes more sense: - For the newer home, calculate 750K/795K = 94.3% of the $28K interest (roughly $26.4K deductible) - Take all the $2,600 from the first home since it was well under the limit - Total deduction would be around $29K instead of whatever TurboTax is calculating Can anyone point me to something that clearly explains the right approach? I feel like I'm missing something, but can't find good guidance on this specific buy/sell scenario.

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25 comments

Evelyn Kim

•8M

The IRS is actually pretty clear on this, though Publication 936 can definitely be confusing! Your approach is correct. When you have multiple homes during the year (not simultaneously), you handle each property separately. For your January-March home with the $320K mortgage, since it's below the $750K limit, 100% of that $2,600 interest is deductible. For your second home purchased in May, you apply the limitation formula to just that property: $750K/$795K = 94.3% of the $28K interest, which gives you about $26.4K deductible. So your total mortgage interest deduction would be $2,600 + $26.4K = $29K, not the lower amount TurboTax is calculating. The software is incorrectly treating this as if you had two mortgages simultaneously, which would require the average balance method. But since these were sequential homes, each gets its own separate calculation.

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Evelyn Kim

•8M

There isn't a specific section that directly addresses sequential homes, but the guidance is found in how Pub 936 discusses the home acquisition debt limit. The $750K limit applies to the average balance of your acquisition debt throughout the year. When you had the first home, its average balance for that period was under the limit, so 100% is deductible. When you had the second home, you apply the limit formula to its average balance. The error TurboTax is making is applying the formula as if you had both mortgages simultaneously. If you're concerned, you might want to attach a brief statement to your return explaining your calculation method. In my experience, this approach is correct and I've never seen it challenged when properly documented.

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Diego Fisher

•8M

Hey there! I had almost the exact same situation last year. After spending hours trying to figure this out, I found this awesome tool at https://taxr.ai that actually explained this exact scenario. Their system analyzed my mortgage statements from both properties and showed me how to calculate it correctly. The key thing I learned was that TurboTax sometimes gets confused with the sequential home purchases in the same tax year. The taxr.ai tool confirmed what you were thinking - each home gets calculated separately since they weren't owned simultaneously. It saved me about $1,400 in deductions that TurboTax would have missed! You just upload your mortgage statements and it walks you through the correct calculation according to IRS rules. Seriously made this headache go away.

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Diego Fisher

•8M

It works alongside any tax software - you use the information from taxr.ai to correctly enter the values into whatever software you're using. It doesn't replace your tax software, just helps you understand the right calculations. The difference between this and just reading IRS publications is that it specifically analyzes your actual documents and gives you personalized guidance. For complicated situations like sequential home purchases in the same year, it points to the exact parts of the tax code that apply to your situation and shows you the math. It's like having a tax pro look over your specific scenario without paying hundreds of dollars for a consultation.

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Lincoln Ramiro

•8M

Ok I gotta admit I was wrong. I was so skeptical about that taxr.ai thing that I tried it just to prove it wouldn't be any better than the free IRS info. I was completely wrong. I uploaded my mortgage docs from my home purchase this year (and sale of my old place) and it explained exactly why TurboTax was calculating things incorrectly. It even generated a worksheet showing the correct month-by-month breakdown of mortgage interest and how much was deductible according to Publication 936. Ended up saving me over $2k in deductions I would have missed. The explanation was so clear I was able to override TurboTax and enter the correct numbers. I hate admitting I was wrong but this actually solved my problem perfectly.

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Faith Kingston

•8M

I had a similar issue when I was trying to prepare my taxes, but my bigger problem was trying to get clarification from the IRS. I spent DAYS trying to get through on the phone to ask about this exact scenario with multiple home purchases in the same year. Finally used https://claimyr.com and they got me a callback from the IRS in about 25 minutes (instead of the 3+ hour hold time I was facing). You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly what others are saying here - each home is treated separately when owned sequentially. The limit applies to each mortgage individually, not combined. TurboTax was definitely calculating it wrong in my case too.

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Faith Kingston

•8M

It's not magic - they use a system that continually redials and navigates the IRS phone tree until they secure a spot in line, then they call you when an agent is about to be available. It's basically like having someone wait on hold for you. The service absolutely connects you with a real IRS agent. They don't provide any tax advice themselves - they just get you the callback from the actual IRS. When my phone rang, it was a legitimate IRS representative who answered all my questions about the mortgage interest deduction for sequential home purchases. They don't see any of your personal tax info or get involved in the actual conversation with the IRS at all.

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Liam Brown

•8M

I need to publicly eat my words here. After I posted that skeptical comment, I was still stuck trying to figure out my mortgage interest deduction situation, so I reluctantly tried the Claimyr service. I got a call back from an actual IRS agent in about 40 minutes. The agent was super helpful and walked me through exactly how to handle my situation with selling one home and buying another in the same tax year. Turns out my tax software (TaxAct) was calculating it wrong too - treating it like I had two mortgages at the same time. The IRS agent confirmed each property should be evaluated separately against the $750k limit when owned sequentially. Genuinely shocked this worked after spending weeks trying to get through on my own. Just wanted to update since my earlier comment was totally wrong.

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Olivia Garcia

•8M

Someone I know had to file an amended return because of this exact issue. Tax software often doesn't handle the "sold one home, bought another" scenario correctly when calculating mortgage interest deductions. The key is understanding that Publication 936 has different rules for: 1. Homes owned simultaneously (the average balance method the software is using) 2. Homes owned sequentially (treating each separately) If you're confident in your understanding, you can override what TurboTax is doing. Just make sure you keep good documentation showing how you calculated it in case of an audit.

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Olivia Garcia

•8M

There's no specific IRS form just for this calculation. What I recommend is creating your own worksheet that shows: - The dates you owned each property - The average balance for each property during the period you owned it - The application of the $750K limit to each property separately - The final interest amount that's deductible Include this as an attachment to your return. Tax software usually has an option to add explanatory statements or attachments. This way, if there's ever a question, you have clear documentation of your reasoning and calculations.

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Logan Greenburg

•4M

I work as a tax preparer and see this confusion all the time! You're absolutely right about how this should be calculated. The sequential ownership is key here - since you didn't own both homes simultaneously, each mortgage gets evaluated against the $750K limit separately. Your math is spot on: - First home: $2,600 fully deductible (well under limit) - Second home: $750K/$795K × $28K = ~$26,400 deductible - Total: ~$29,000 The issue with tax software is that it often defaults to treating multiple mortgages as if they existed simultaneously, which triggers the average balance method. But that's not your situation. When you override TurboTax, make sure to keep a clear record of your calculation method. I always recommend clients attach a brief explanation showing the dates of ownership for each property and how they applied the deduction limit. This helps avoid any confusion if the IRS ever reviews the return. The guidance is somewhat scattered across Publication 936, but the principle is clear: the $750K limit applies to your acquisition debt throughout the year, and when you have sequential ownership, each property period gets its own calculation.

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Zoe Stavros

•4M

This is exactly the kind of professional insight I was hoping to find! As someone new to this community, I really appreciate having a tax preparer confirm the approach. I've been wrestling with this same sequential ownership issue and it's reassuring to know that the software defaults are often wrong in these situations. Quick question - when you mention attaching a brief explanation, do you typically see any pushback from the IRS on these overrides? I'm always nervous about manually changing what the software calculates, even when I'm confident it's wrong. The documentation approach you described sounds like good CYA practice. Also, do you happen to know if there's a specific section number or paragraph in Pub 936 that I could reference in my explanation? I'd love to cite the actual guidance if possible.

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Freya Ross

•2M

In my 8 years of preparing returns, I've rarely seen pushback on properly documented mortgage interest calculations like this. The IRS is generally more concerned with people who can't support their deductions than with those who provide clear documentation of their methodology. For Pub 936 references, you'll want to look at the section on "Limit on Home Acquisition Debt" - specifically the part that discusses how the limit applies to the average balance of acquisition debt during the tax year. While it doesn't explicitly say "sequential homes," the logic flows from how the average balance is calculated for each ownership period. The key language is that the deduction limit applies to debt secured by your main home and second home during the year. When you own homes sequentially, each ownership period gets its own average balance calculation. Section 936 also clarifies that if your acquisition debt doesn't exceed $750,000, all interest is deductible - which applies to your first home situation. I always tell clients: when in doubt, document your reasoning. A one-page explanation showing ownership dates, mortgage balances, and your calculation method is usually sufficient. The IRS wants to see that you made a good faith effort to follow the rules, not that you used whatever number a computer spit out.

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CosmicCruiser

•2M

Thank you all for this incredibly helpful discussion! As someone new to homeownership and dealing with this exact scenario for the first time, I was completely lost trying to interpret Publication 936 on my own. I bought my first home in February 2023 and then had to relocate for work, so I sold that house in August and purchased a new one in October. My tax software was giving me numbers that just didn't seem right, and now I understand why - it was treating both mortgages as if I owned them simultaneously. Based on what everyone has shared here, I need to calculate each home separately: - First home (Feb-Aug): mortgage was $425K, so all interest is deductible - Second home (Oct-Dec): mortgage is $820K, so I apply the $750K/$820K limitation The professional insights from Logan and Freya about documentation are especially valuable. I'll definitely create a worksheet showing the ownership periods and calculations, and include the Pub 936 references they mentioned. This community is amazing - you've saved me from either overpaying taxes or potentially getting into trouble with incorrect calculations. Really appreciate everyone taking the time to explain this complex situation so clearly!

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Zainab Ibrahim

•2M

Welcome to the community, CosmicCruiser! Your situation sounds very similar to what others have described here, and it's great that you're getting it sorted out before filing. The work relocation scenario is actually pretty common - I've seen several cases where people have to sell and buy within the same tax year due to job changes. One thing to double-check with your October purchase - make sure you're calculating the average balance correctly for just the October-December period when you owned that second home. So if you closed in mid-October, you'd prorate that first month. It might not make a huge difference in the final number, but it's worth being precise. Also, keep all your HUD-1 settlement statements or closing disclosures from both transactions. They'll show exactly when you took ownership and can help support your timeline if there are ever any questions. The documentation approach that Logan and Freya outlined is spot-on - I always feel more confident filing when I have that paper trail backing up my calculations. Good luck with your filing, and glad this discussion could help clear things up!

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Liam Cortez

•2M

This thread has been incredibly educational! I'm facing a similar situation but with a slight twist - I had overlapping ownership for about 3 weeks while closing on both properties. From what I'm understanding here, that brief overlap period might change how I need to calculate things. During those 3 weeks in June 2023, I technically owned both homes simultaneously - my old home with a $380K mortgage and the new one with a $720K mortgage. For that specific period, would I need to use the combined average balance method that TurboTax was incorrectly applying to everyone else's sequential ownership situations? So my calculation would be: - Jan-May: Old home only, $380K mortgage (100% deductible, under limit) - June overlap period: Combined $1.1M total, so $750K/$1.1M = 68% of interest deductible for both properties - July-Dec: New home only, $750K/$720K = 100% deductible (actually under the limit) Has anyone else dealt with this overlapping ownership scenario? The professional advice from Logan and Freya has been so helpful, but I want to make sure I understand how the brief simultaneous ownership affects the calculation.

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