[PackerBacker12]

I know you’re able to deduct the mortgage interest on your first 2 personal residences up to $1,000,000 in principal balance and $100,000 on a HELOC for a total of $1,100,000. I was under the impression that as long as the balance was under the $1,100,000 total at the end of the year, there is no limitation. However, yesterday at work, my boss said that if at any point during the year the principal balance was over $1,100,000 and then under that limit at the end of the year, you can’t take 100% of the interest. You have the take average balance (principal balance at beginning of the year and principal balance at end of the year) and that total over the $1,100,000 limit is the percentage of the total mortgage interest you can deduct for that given year. His reasoning, and he said that the IRS code is clear on it as well and that auditors have verified it with him, is that since at one point in the year the balance was over the $1,100,000 limit, you are not entitled to take 100% of the deduction. My question is, is he correct about this. I never heard that that’s how it should be calculated. I thought that as long as the balance was under the $1,100,000 total at the end of the year, there is no limitation.

[bigstakk]

My interpretation is that you would recompute the interest at the max $1M threshold during the months it was over $1M and add it to the interest incurred during the months while it was less than $1M. At this point As of last year the new threshold is $750k, so unless you are planning on amending an old return none of this really matters anymore.

AUD - 81
BEC - 87
FAR - 80
REG - 82

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Ethics Exam - 90%
Licensed CPA in CA

[Author]

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