Does TurboTax calculate the mortgage interest deduction correctly? My 2022 federal tax return was audited. It appears that Schedule A has a larger deduction than allowed.

[fernando.miralles.wilhelm]

I have 2 mortgages and both have a date of origination of 2021, which means that my mortgage deduction is capped at the $750,000 loan limit (married filing jointly. However, Turbotax does not calculate a reduced mortgage interest deduction given that my mortgage total is larger (combined $1.3M). The Schedule A that is generated by Turbotax shows a deduction of the entire mortgage interest. This is why I got audited and the IRS says I owe them $13K.

[fanfare]

There have been complaints.

you should use Pub 936 to do the calculaton yourself, if you want to dispute the IRS adjustment.

@fernando.miralles.wilhelm 

[fernando.miralles.wilhelm]

Thank you. When I spoke to the IRS, they suggested I do the same through Pub 936.

However, it is baffling that this mistake is made by the TurboTax calculations, and that in trusting the software (after all, it "checks for errors"), you end up filing a tax return that has a glaring error. 

Given that, I will submit amended returns for 2023 and 2024 (not through TurboTax) and not use TurboTax any more going forward. This is bad!

[MonikaK1]

If you were able to deduct all of your mortgage interest for 2022 but should have had a limitation applied because you took the loan out after December 15, 2017,  and your outstanding debt was larger than $750,000, you could have been affected by an issue within TurboTax at that time. However, TurboTax did run a study and notified users who appeared to have been affected. The debt limit is working for Federal returns for 2023 and beyond.

See this help article regarding the 2022 issue. It has instructions on how to amend 2022; however, you shouldn't file an amended return if the IRS is currently auditing the issue. You could prepare one to compare the results with any proposed IRS adjustment.

TurboTax calculations are guaranteed. If your situation meets the terms of the 100% Accurate Calculation Guarantee, Intuit will reimburse the amount actually paid by you to the IRS or state in penalties and/or interest as levied against you in their first notice (i.e., if the notice is not paid, Intuit will not reimburse additional interest and penalties for not paying the first bill timely).

Claims can be filed online here. If you file a 2024 claim and the drop-down menu of years doesn't show 2024 yet, you can choose "2023" and the Accurate Guarantee team will consider your claim.

For mortgages acquired after December 15, 2017, taxpayers can write off interest paid on indebtedness of $750,000 or less. If mortgage indebtedness exceeds $750,000, only a percentage of the interest can be deducted.

See IRS Publication 936 for more details about the mortgage interest deduction.

@fernando.miralles.wilhelm 

[fernando.miralles.wilhelm]

Hello: thanks for this detailed reply. It does help clarify the 2022 issue.

However, I am looking now at the Schedule A generated by TurboTax for 2023 and 2024, and see the same error, i.e., the full mortgage deduction appears without any reduction due to the $750K outstanding debt limit.

Who can I contact to look into this? I want to make sure I avoid any unnecessary amendments or audits.

Thanks again. 

[sandrom]

I'm on the same boat. After calculating the limited amount of interest that I'm eligible, where do I apply it?

From past experience, if I edit Schedule A directly TurboTax will not let me file it electronically.

[MonikaK1]

If you override calculations in TurboTax, it can invalidate the terms of the 100% Accurate Calculation Guarantee.

In order for us to troubleshoot this issue and determine whether it should be reported for possible programming enhancements, you can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Desktop users:

1. From the black bar at the top of your screen, select Online
2. Click Send Tax File to Agent
3. Click Send on the message that pops up
4. TurboTax will create a "sanitized" copy of your return information with no personal info
5. Post the 7-digit token number here in this thread

Here are the instructions for TurboTax Online users: 

Go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools. 
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent. 
4. You will see a message explaining what the diagnostic copy is. Click okay through this screen and then you will get a Token number. 
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to review your file to see what you are seeing, and we can determine what is going on in your return and provide you with a suggested resolution.

@fernando.miralles.wilhelm 

@sandrom 

[fernando.miralles.wilhelm]

@MonikaK1 

I am sorry, but I don’t see any black panel on my Turbo Tax online so I am unable to carry out your instructions to share my file.

[MarilynG1]

In the left-side menu pane, click on Tax Tools > Tools, then choose 'Share File with Agent' from the pop-up menu.

@fernando.miralles.wilhelm 

[sandrom]

My problem is currently being discussed internally (case: 1 5 4 8 6 9 0 6 9 5 by Tonya)

token: 1 1 7 3 1 4 7 3 6 0 - 9 8 6 0 0 0 5 0

I was also audited by the IRS and had to pay interest and penalties (several thousands of $) because TurboTax didn't limit the mortgage interest. Note that in my case the mortgage interest is prorated from ScheduleE (an AirBNB room rental on my primary home) but the problem is similar. The prorated mortgage interest imported from ScheduleE to ScheduleA Line 8a is not limited and greatly exceeds the IRS limit that should limit the mortgage interest to the first $750k of my loan.

[fernando.miralles.wilhelm]

Thank you @MarilynG1 

I have shared my file.

My token number for Tax Year 2024 is 1299164.

My token number for Tax Year 2023 is 1299165.

As I mention above, the error in the allowable mortgage deduction calculation by TurboTax (which goes into Schedule A, line 8A) is incorrect for years 2023 and 2024. 

It was also incorrect for Tax Year 2022, I got audited and had to not only repay the IRS a large sum of money, but also interest and fees. 

I want to understand what is going on and how to fix this problem for my returns in 2023 and 2024, as I will likely be audited again.

[MonikaK1]

Thank you, we will take a look and respond in this thread.

[MonikaK1]

I have reviewed the 2023 file. A couple of questions:

Was the largest-balance loan a refinance of a loan originated in 2016?

Were any of the proceeds of that loan used for anything other than building or improving that home?

Refinanced grandfathered debt.

If you refinanced grandfathered debt after October 13, 1987, for an amount that wasn't more than the mortgage principal left on the debt, then you still treat it as grandfathered debt. To the extent the new debt is more than that mortgage principal, it is treated as home acquisition debt (so long as the proceeds were used to buy, build, or substantially improve the home), and the mortgage is a mixed-use mortgage (discussed later under Average Mortgage Balance in the Table 1 Instructions). The debt must be secured by the qualified home.

You treat grandfathered debt that was refinanced after October 13, 1987, as grandfathered debt only for the term left on the debt that was refinanced. After that, you treat it as home acquisition debt to the extent that it was used to buy, build, or substantially improve the home.

The 2023 return doesn't have the error that was in the 2022 returns where the "No"  box was automatically checked in the Tax & Interest Deduction Worksheet for "Does your mortgage interest need to be limited". Instead, the interest was not limited based on the answers to the questions in the interview.

[fernando.miralles.wilhelm]

Was the largest-balance loan a refinance of a loan originated in 2016?

YES

Were any of the proceeds of that loan used for anything other than building or improving that home?

NO

[MonikaK1]

Thank you; we are still looking into it and will respond here with an answer when ready.