### Help with Mortgage Interest Deduction - Buy/Sell Home

Posted:

**Mon Mar 11, 2019 11:29 pm**I could use some help with the home mortgage interest deduction on my 2018 taxes. Pardon the length of the post, but I’m hoping some of the forum’s tax experts are willing to stick it out to help me, as I’m at a total loss. The issue has to with selling a home that was subject to a pre-Dec. 2017 mortgage under the old limit and buying a home in 2018 with a mortgage that is over the new limit. I’ve read Pub 936 several times and have worked through Table 1 several times. But I don’t fully understand how this scenario fits into Pub 936, and I’m confused by the results I’m getting. We’re married filing jointly.

“Old Home” / “Old Loan”

-Mortgage taken out before Dec. 2017

-Mortgage was always under the $1,000,000 qualified loan limit

-Sold Dec. 14, 2018

-Primary residence through Oct. 2018, then became secondary residence

-Paid $27,797.64 in interest in 2018 per 1098

“New Home” / “New Loan”

-Mortgage taken out Oct. 10, 2018 when we purchases the house

-Initial Mortgage balance $1,366,375 (i.e., over the new $750,000 qualified loan limit)

-Became primary home shortly after purchase

-Paid $8,584.74 in interest in 2018 per 1098

As I read Pub 936, and in particular Table 1 and the corresponding instructions, I only have a few blanks I actually need to fill in, the rest is just calculations:

This is my “Old Loan.” Based on the “Account Balance” method on page 12 of Pub 936, I think I can just take the balance on each month’s mortgage statement, sum them, and divide by 12. I paid my mortgage at the start of each month, so I had a balance each month, and it averaged out to $759,888.50 (if I instead report Dec. balance as zero because of the sale, the average drops to $697,XXX).

This is my “New Loan,” and I don’t know how to handle it. If I use the average balance across the three months I had the loan, the average balance would be $1,365454.74. Call this Option A. However, some of the instructions imply I might be able to average the balance across the entire year, in which case the average loan value would be $341,287 (this doesn’t make a lot of policy sense, but I’m just trying to follow the form). Call this Option B.

This would be:

$759,888.50+$1,365454.74=$2,125,343 (Option A); or

$759,888.50+$341,287=$1,101,176 (Option B).

If I use Option A for Line 7, Table 1 only lets me deduct $13,008 in interest for the year.

If I use Option B for Line 7, Table 1 lets me deduct $25,106 in interest for the year.

The first outcome makes no sense. The second one doesn’t seem crazy, but the way I computed the average feels a bit odd, and moreover it’s still less than the interest on the “Old Loan,” which would have been fully deductible without question had I not bought the new house.

So, HELP! What am I missing here?

**Here’s the scenario:**“Old Home” / “Old Loan”

-Mortgage taken out before Dec. 2017

-Mortgage was always under the $1,000,000 qualified loan limit

-Sold Dec. 14, 2018

-Primary residence through Oct. 2018, then became secondary residence

-Paid $27,797.64 in interest in 2018 per 1098

“New Home” / “New Loan”

-Mortgage taken out Oct. 10, 2018 when we purchases the house

-Initial Mortgage balance $1,366,375 (i.e., over the new $750,000 qualified loan limit)

-Became primary home shortly after purchase

-Paid $8,584.74 in interest in 2018 per 1098

As I read Pub 936, and in particular Table 1 and the corresponding instructions, I only have a few blanks I actually need to fill in, the rest is just calculations:

**-Line 1 – Grandfathered debt**– none**-Line 2 – Average balance of all your home acquisition debt incurred before Dec. 16, 2017**This is my “Old Loan.” Based on the “Account Balance” method on page 12 of Pub 936, I think I can just take the balance on each month’s mortgage statement, sum them, and divide by 12. I paid my mortgage at the start of each month, so I had a balance each month, and it averaged out to $759,888.50 (if I instead report Dec. balance as zero because of the sale, the average drops to $697,XXX).

**Line 7 – Average balance of all your home acquisition debt incurred after Dec. 15, 2017**This is my “New Loan,” and I don’t know how to handle it. If I use the average balance across the three months I had the loan, the average balance would be $1,365454.74. Call this Option A. However, some of the instructions imply I might be able to average the balance across the entire year, in which case the average loan value would be $341,287 (this doesn’t make a lot of policy sense, but I’m just trying to follow the form). Call this Option B.

**Line 12 – Enter the total of the average balances of all mortgages from Lines 1, 2, and 7 on all qualified homes**This would be:

$759,888.50+$1,365454.74=$2,125,343 (Option A); or

$759,888.50+$341,287=$1,101,176 (Option B).

If I use Option A for Line 7, Table 1 only lets me deduct $13,008 in interest for the year.

If I use Option B for Line 7, Table 1 lets me deduct $25,106 in interest for the year.

The first outcome makes no sense. The second one doesn’t seem crazy, but the way I computed the average feels a bit odd, and moreover it’s still less than the interest on the “Old Loan,” which would have been fully deductible without question had I not bought the new house.

So, HELP! What am I missing here?