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I know there is a limitation on how much mortgage interest…

I know there is a...
I know there is a limitation on how much mortgage interest you can write off...it's a $1,000,000. Does that still apply if you sold one house during the year and bought another?
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Answered in 5 minutes by:
4/15/2017
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,985
Experience: Taxes, Immigration, Labor Relations
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The limit is not applied to the amount of mortgage interest - but rather on the amount of mortgage borrowed.

The total amount you (or your spouse if married filing a joint return) can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million ($500,000 if married filing separately).

You may deduct mortgage interest on your primary residence and ONE secondary home.

You have to figure the average balance of each mortgage to determine your qualified loan limit.

Questions?

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Customer reply replied 1 year ago
Lev,Thanks. My main point is this: I had a primary residence up till November and sold it...the balance was roughly $487k. Then, my new home (primary) was bought in November and I had a $639k balance. Is there a limitation of how much interest I can deduct?

There is NO limitation on your mortgage interest deduction in your situation as long as old and new mortgage were NOT in effect at the same time.

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Customer reply replied 1 year ago
Lev,Where in the IRS publication states that?

IRS publication 936

https://www.irs.gov/pub/irs-pdf/p936.pdf

page 11

Average Mortgage Balance
You have to figure the average balance of each mortgage to determine your qualified loan limit. You need these amounts to complete lines 1, 2, and 9 of Table 1. You can use the highest mortgage balances during the year, but you may benefit most by using the average balances.
The following are methods you can use to figure your average mortgage balances

See examples and worksheet on following pages.

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Customer reply replied 1 year ago
Les, I am familiar with the worksheet....can you define "NOT in effect?" Thanks!

I assume that you did not had TWO mortgages on the SAME day - in this case no need to add them together.

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Customer reply replied 1 year ago
No, Lev, one closed escrow in early November and the purchase closed escrow in late November--does that matter? Is your answer still the same? Thanks!

Why no?
You close one mortgage first - and purchased after that.
So you did not have both mortgages on any single day.

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Customer reply replied 1 year ago
Thanks Lev! I was just checking, because you know how the 1098's now show the balances of the loans---and both loans total over $1,000,000, but not at the same time.

It is possible that the IRS could question your reporting.

That happens on multiple occasions.

So what? You will reply and provide explanation of facts and reasoning.

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Customer reply replied 1 year ago
no need to calculate the limitation of potential interest? It doesn't matter when escrow was opened up, etc?

Based on your information - that is not needed.

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Customer reply replied 1 year ago
Lev, to review one more time…had primary residence that I was paying mortgage on. That primary residence sold and closed escrow in November. I bought and closed escrow in late November on new primary home with a higher balance. Both balances combine over a $1,000,000, but not at anytime the same day. Are we good?

The limit is not applied to the amount of mortgage interest - but rather on the amount of mortgage borrowed.

You NEVER borrowed more than $1,000,000.

Thus - that limit doesn't apply to your situation.

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Customer reply replied 1 year ago
The amount borrowed was over $1,000,000, but NOT on the same day, as you mentioned.

The amount borrowed NEVER was more than $1,000,000.

That is not correct interpretation.

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Customer reply replied 1 year ago
I don't follow--am I confusing myself? :(

Yes - you are confusing yourself and trying to confuse me.

You have to figure the average balance of each mortgage to determine your qualified loan limit.
If you receive monthly statements showing the closing balance or the average balance for the month,
you can use either to figure your average balance for the year. You can treat the balance as zero for any month the mortgage was not secured by your qualified home.
For each mortgage, figure your average balance by adding your monthly closing or average balances and dividing that total by the number of months the home secured by that mortgage was a qualified home during the year.

Lev
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