I am using Turbo Tax 2025 Deluxe. I have a 1098 statement. The statement shows interest for a home equity line of credit secured by my 2nd home to help purchase my new main home in September 2025 (I sold my previous main home to my son). The IRS rules are such that the interest paid on this HELOC should not be deductible. The 1098 I received has interest shown in box 1. Box 2 shows an outstanding principal of $0. This is ok (expected) because this was the outstanding principal of the HELOC on January 1, 2025. It is not the outstanding principal on December 31, 2025.
When I enter the numbers in TurboTax as shown on the 1098 and answer all the questions in TurboTax correctly and honestly, the program is allowing the full deduction for interest in Box 1. This is wrong and will result in underpayment of taxes per the existing IRS rules.
Now if I alter the amount in box 2 of the 1098 to $1, TurboTax disallows the entire amount of the interest deduction which is the correct outcome. In fact, it will disallow the deduction no matter the amount entered for Box 2 as long as it is not zero.
I think your software has an issue which should be corrected ASAP.
