Calculating the Average Debt Balance (for Mortgage Interest Deduct. Limits)

[Nina]

Hello, everyone!
I would really appreciate your help regarding calculating the average debt balance for Deductible Home Mortgage Interest.
Here is my example: Taxpayer has one principle residence and he has purchased in July 2007 a lot for a construction of his new principle residence (Balance of his loan for his new lot is $1,200,000 as of 12/31/07)

His principle residence loans balances are:

01/01/07 -06/08/07 $1,100,000 ($1,000,000 Lender 1 & $100,000 Lender 2)
06/08/07-12/31/07 $1,500,000 ($1,500,000 Lender 3; TP has refinanced and paid off Loan #1 and Loan #2)

I am trying to calculate his deductible home mortgage interest. Could you please help me in calculating the average debt balances? I am not sure what method I should use? Thank you very much!

Sincerely,

Nina

[Kram BergGold]

What I would do

Jan -June 8 deduct interest on 1,000,000 home acquisition debt (HA). As for the 100k if HA debt then the interest is not deductible and if home equity (HE) then deductible but subject to AMT.

June 8 to Dec 31. All debt is HA I assume. So 1.5 million plus 1.2 million divided by 2 equals 1,350,000 average debt so 1 mil divided by 1.35 mil = 74.07% and this times the interest is deductible.