- 1). Add the outstanding balance of your primary mortgage, if any, to the total of your mortgage on your second home and compare the result to your mortgage limit. The Internal Revenue Service limits your deduction to the interest on the first $1 million ($500,000 if married filing separately) of all of your mortgages. If your total mortgage debt does not exceed the limits, the entire amount is deductible.
- 2). Calculate the percentage of your second home mortgage interest that you can deduct if your total mortgage debt exceeds your limit by dividing the difference between the mortgage balance limit and your first home mortgage by the average balance of the second house mortgage. For example, if you are married filing jointly, your limit equals $1 million. If you have a mortgage of $700,000 on your first home mortgage and $600,000 on your second home mortgage, you would divide the $300,000 (the difference between $700,000 and $1 million) by $600,000 to get 0.5, or 50 percent.
- 3). Multiply the amount of interest paid on your second home mortgage by the percentage of the interest you can deduct. In this example, if you paid $27,000 in interest on your second home mortgage, you would deduct $13,500.
- 4). Report the amount of your mortgage interest deduction on line 10 of Schedule A. This amount will be deducted from your taxable income.
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