Mixed Mortgage Question

[JG EA]

Client has (approx) $250,000 buy-build-improve, $100,000 equity, and $30,000 other all now in one mortgage.

To figure out the average principal balance:

The wording in Pub 936 says to apply the principal paid first to the equity, but how do you take the non deductible interest into the mix?

Do you take a percentage of the loan, the "other" off first as if it didn't exist? Or do you apply the principal paid against the other first?

[Kram BergGold]

My answer

First, your question is not clear so my answer is directed at what I think you want to know.
home aquisiton debt is $250k
home equity is 100k
other is 30k
total 380k

lets say average for year is 378k.

so HA is 250/378= 66.14%
HE is 100/378= 26.46

other is the rest

the next year

avg balance is 370k

HA is 250/370 = 67.57%
HE 100/370 = 27.02%

other is the rest.

See I do not reduce HE debt until all other is reduced to zero
I do not reduce HA debt till all HE debt is reduced to zero.

[JG EA]

Thank you for replying. The confusion - not being able to use the average balance on table 1 if there is a mixed use mortgage.

But, you answered my question. The "other" debt needs to be paid off, then the home equity debt, then the Buy-Build-Improve.