Case: Portion of Mortgage Interest Deduction Disallowed, Average Indebtedness on Two Homes Exceeded $1M (T.C. Summ.) (IRC §163)

Couple who owned two homes erred when calculating the average mortgage balance for their second home that was sold in May using the 12-month period instead of the 5-month period during which the home secured the outstanding balance on the mortgage, and the average mortgage balance for both their homes for 2019 exceeded the $1 million limit so a portion of the interest they paid wasn’t deductible, the U.S. Tax Court held, sustaining the IRS’s notice of deficiency. Taxpayer incorrectly used IRS Publication 936 as guidance to calculate the mortgage interest deduction using a 12-month period. The court reasoned that ...