Need help with IRS Pub 936 - Is my mortgage over the $750k Home Mortgage Interest deduction limit for MFJ?

Wait, so the rental property mortgage doesn't count against the $750k limit? What if it's a vacation home that we sometimes rent out and sometimes use personally? Does that change things?

For a mixed-use property like a vacation home that you both use personally and rent out, you'll need to allocate the mortgage interest based on personal vs. rental use. If you use it personally for more than 14 days or 10% of the days it was rented (whichever is greater), it's considered a qualified residence and would count toward your $750,000 limit for the personal use portion. For the rental portion, you'd deduct that interest on Schedule E as a rental expense. The allocation is typically based on the number of days used personally versus days rented at fair market value. So if you used it 30 days personally and rented it 90 days, 25% of the interest would count toward your $750,000 limit, and 75% would be a rental expense.

Does it handle home equity loans too? I have a primary mortgage and then took out a HELOC for a major renovation last year. Not sure if that counts under the $750k cap differently.

I'm a bit skeptical about AI tax tools. How accurate was it compared to what an actual CPA would tell you? Did you double-check the results with another source?

Yes, it definitely handles home equity loans and HELOCs! The key factor is what you used the money for. If you used the HELOC for home improvements on your residence, then it counts toward the $750k limit. If you used it for other purposes (like paying off credit cards), the interest isn't deductible as home mortgage interest anymore since the 2018 tax law changes. I actually did compare it with what my tax guy said last year, and it was spot on. What impressed me was how it explained everything in simple terms and showed exactly which part of my mortgage interest was deductible. Much easier than trying to work through the IRS publication myself.

How does this actually work? Seems fishy that they could somehow get you through the IRS phone lines faster than everyone else. Isn't that like cutting in line?

I tried calling the IRS directly about mortgage interest deductions last month and gave up after being on hold for 2+ hours. You're telling me this service actually gets through? Sounds too good to be true honestly.

It's not cutting in line - they use an automated system that continually redials until it gets through, then it calls you when it has an IRS agent on the line. It's the same as if you kept redialing yourself, except you don't have to waste your whole day doing it. I was skeptical too, but it really does work. They don't answer tax questions themselves - they just connect you with an actual IRS agent who can provide official guidance. For complicated tax questions like mortgage interest limitations, getting the answer directly from the IRS gave me peace of mind that I was doing it right.

Oh that's interesting. Our primary home mortgage is from 2023, but the rental property was originally purchased in 2014 and then refinanced in 2023. Would the original purchase date matter for the rental, or does refinancing reset everything? I didn't even think about the grandfathering rules.

For the rental property, the date doesn't matter for the mortgage interest deduction limit since rental property interest is fully deductible as a business expense on Schedule E. The date only matters for your primary residence or second home. For refinancing, it doesn't reset the clock if you only refinanced the original acquisition debt. For example, if you bought your house in 2016 with a $900k mortgage and refinanced it in 2023 for the same amount, you'd still qualify for the $1 million limit. But if you took cash out during the refinance for something other than home improvements, that additional amount wouldn't be grandfathered.

I work with tax clients and yes, mortgage interest deductions do get flagged if they're unusually high compared to your reported income or if there are inconsistencies with what your lender reports on Form 1098. The IRS computer systems automatically match your deduction with the 1098 forms submitted by lenders.

Hey Layla! Welcome to the conversation - looks like you've got a good grasp on the basics now. I actually went through the Publication 936 worksheet last year and you're right, it's pretty confusing even after reading all the explanations here. One tip that helped me: make sure you have your original loan documents handy when you work through it, not just your current statements. The worksheet asks for specific dates and original loan amounts that might not be clear from your monthly payment stubs. Also, since you mentioned you might call the IRS - definitely try that Claimyr service that Paolo mentioned if you go that route. I was skeptical at first but after seeing Oliver's follow-up, it seems legit. Much better than spending your whole day on hold! Good luck with the calculations - this mortgage interest stuff is way more complicated than it should be.

This is really helpful Chris! I didn't realize the calculation needed to be based on the actual loan balance throughout the year rather than just a simple percentage. That makes it more complicated but also more accurate I suppose. Quick question about TurboTax - when you say it walks you through the calculation, does it automatically pull the loan balance information from the 1098 forms, or do you need to input monthly balance data manually? I'm wondering how detailed I need to get with tracking the principal payments throughout the year. Also, did you end up needing to file any additional forms beyond the standard Schedule A for the mortgage interest limitation, or does TurboTax handle all of that behind the scenes?