How do I input average mortgage balance when the loan was only partially used to improve my home?

TitoPogi
TitoPogi Member Posts: 1 Newcomer
in Credits/Deductions

FreeTaxUSA says "Enter the average mortgage balance" but earlier (when inputting the figures from Form 1098, Mortgage Interest Statement) FreeTaxUSA asks me "Did you use all of the money from this loan to buy, build, or substantially improve your home?" The answer is "no" so the software said to input in Box 1 only that portion of the interest expense that related to the loan proceeds used to buy, build, or substantially improve your home. So, when I am entering the average mortgage balance, do I input a reduced number to reflect the fact that some of the loan was used for things unrelated to my home? It seems that doing so would be duplicating (double-counting) the reduction I did earlier when I inputted only a portion of the interest expense shown in Box 1 of my Form 1098.

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Answers

  • MatthewD
    MatthewD FreeTaxUSA Admin, FreeTaxUSA Agent Posts: 857 image
    Hello TitoPogi,

    Your may need to do both steps if your average balance is over $750,000 and you did not use all the mortgage loan to "buy, build, or substantially improve your home".

    If you reduce the amount of interest you deduct based on a ratio of the loan, and your qualifying mortgage amount is greater than $750,000, then the amount you can claim as mortgage interest should be reduced too.

    Use the percentage of the mortgage interest which related to loan to "buy, build, or substantially improve your home". Then use the same ratio to reduce the average mortgage balance as well, to figure out the qualifying mortgage interest you may deduct.

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