Mortgage Interest Deduction

[S T]

I have client with about $1.7 million dollar mortage balances, which now is giving me a headache.

1/1/06 - T/P owns home in San Diego, Calif with about $800K on outstanding loans on his primary residence. Job transfer to Co and buys home in Colorado for $1,050,000 and finances $997,070. (1/06) so for 2006 I am way, way, way over the $1,100,000 limits.

First home in San Diego sells 6/19/06, t/p moves on the job transfer 6/26/06 and the Colorado home is now primary residence. So 6 months old residence in Ca and 6 mos new residence in Co.

All loans are for acquistion or improvements, no refinance for cards, credit card debt etc.

Question, I have to limit mortgage interest deduction to the $1,100,000 from 1/1/06-6/19/06, as we can't have more than than the $1.1 mil total, correct?

Since I have a primary home up to 7/06 and then a new primary home after 7/06 (first home sold) how do I complete the worksheets or do I need to complete for the Qualified Loan Limit and Deductible Interest. Seems like when I try with CFS Tax Tools it provides an average balance of way higher than what it actually is and limits.

Can I prorate the interest on the Calif property from 1/06-6/30/06, and not take the Colorado property interest (pro-rated for that period), then figure the pro-ration on the Colorado property for the last 6 months? And then there is the issue of what figure to place on the form 6251 for AMT.

I am confused as I have 2 different properties. Jan-June Primary in Ca and secondary in Co, then Calif is sold, and july-Dec only primary in Co.

Thanks

Sandy

[jerome]

The tax book on page 4-11 says total acquisition debt on main and second home combined is limited to $1 million at any time.

This agrees with the statement on page 8 of pub 936 which says the total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million.

It does not say the combined debt for the entire year. It says total debt at any time.

I interpret that to mean at any point in time, the total amount of debt cannot exceed $1 million.

So I would break up the time periods throughout the year into segments. The time period before the sale of the CA home. The time period in between the sale and the move, and the time period after the move, and figure your limitations accordingly.