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Get your taxes done using TurboTax
Someone asked a question on my previous answer, see thread below. May be able to deduct more than the 10K plus 75% of 20K in below calculation. Copied all so you can follow. Your average loan balance depending on months each loan outstanding may give you a greater deduction.
Ignore most of my earlier post. I downloaded 2020 TT software and tried to override on Schedule A , which created an error that wouldn’t allow e-filing, and no place to override on Home Int Wkst either in View - Forms.
Did find a fix:
1. Prepare Excel type worksheet to calculate deductible mortgage interest consisting of:
A. 10K from first 500,000 loan, plus
B. Average Principal Outstanding on new loan calculated per IRS Publication for Mortgage Interest Deductible (Simple Calculation would be end of month principal for each month the loan was outstanding and divide total by total number of months loan outstanding , which will give you an average principal outstanding slightly less than 1,000,000 used in your question). Then calculate deductible interest as ($750000 divided by calculated average principal outstanding) times 20K.
Take the calculated total per above and go to Tax & Int Wks in View Tab - Forms and Right Click on Line A2 in Mortgage Interest Limited Smart Worksheet on said form and click on Add Supporting Details. In DESCRIPTION COLUMN type in “calculated amount” or similar descriptor and go to AMOUNT COLUMN and enter the above calculated allowable deductible mortgage interest amount. Hit Enter and the correct interest deduction will automatically transfer to Schedule A without creating an error that prohibits you from filing electronically.
Post if you have any issue. Good night.
I understand what you are suggesting for the second loan ($1M one), but shouldn't you add the average balance form that with the average balance of the $500k one? Why do you think you can deduct the full interest from the $500k one? Isn't the $750k limit applied to the total of all loans?
May be above my pay grade. Went back Publication 936, and using average loan balance using ending balance of each loan the method proposed by me and original poster may limit their interest deduction by too much. Please check my math and logic. Poster wanted to deduct 10K plus 75% of 20K or combined 25K. TT was at calculating 75% of both or 22.5K, I presume.
Reading Publication 936 and using end of month basis to calculate Average Balance (because loan example was twice as much on second loan and interest was also twice as much, I used 6 months outstanding fir each loan ... may be off as rates probably not identical) I calculated Average Balance as:
Loan 1:
500,000 times 6 months = 3,000,000 divided by 12 = 250,000
Loan 2:
1,000,000 times 6 months = 6,000,000 divided by 12 = 500,000
Add loan 1 and loan 2 Average Balances for a total of 750,000... so all is deductible as equal to or below $750,000 limitation. Your thoughts? Poster would have to do exact calculation.
Makes sense. Now a different question - I'm using the online version of TT. How do I enter these numbers? I don't think I can access the worksheets? All I can do is to go through the interview. Should I enter these numbers instead of what's on my 1098 box2 when asked about Outstanding mortgage principal, etc. to achieve the same average mortgage calculation?
On the online version, which I do not use, can you go to "View Tab" and instead of selecting "Step by Step" open Forms. You can then go to Forms and then go to TAX & INT WRKST and override (see below)
.
I downloaded 2020 TT software and tried to override on Schedule A , which created an error that wouldn’t allow e-filing, and also no place to override on Home Int Wkst either in View - Forms.
Did find a fix:
1. Prepare Excel type worksheet to calculate deductible mortgage interest consisting of Average Principal Outstanding and then calculate the correct interest deduction (i.e. Average Principal Outstanding divided by $750,000 and the multiple that percentage by total interest paid.
Then proceed with Override on Forms, if available:
Take the calculated total per above and go to Tax & Int Wks in View Tab - Forms and Right Click on Line A2 in Mortgage Interest Limited Smart Worksheet on said form and click on Add Supporting Details. In DESCRIPTION COLUMN type in “calculated amount” or similar descriptor and go to AMOUNT COLUMN and enter the above calculated allowable deductible mortgage interest amount. Hit Enter and the correct interest deduction will automatically transfer to Schedule A without creating an error that prohibits you from filing electronically.
HOWEVER YOU SAY ONLINE DOESN"T LET YOU DO IT SO, I would follow your suggestion and just enter Average Principal Outstanding and TOTAL INTEREST. I believe TT will calculate correct deductible amount by taking Average Outstanding / $750,000 times interest paid.
Check amount on Schedule A and see it is equal to your calculation.
Hopefully one method will work. Save your Excel worksheet /. Calculation just in case IRS questions. That said Worksheets are not filed with IRS just back-up / calculation tool.
Post if you have any issue.
