No, do not respond No to that question for either loan. If you answer no, TurboTax will still be expecting a Form 1098 that is the most recent for that loan which will cause a miscalculation of the average balance. In your situation, you will want to calculate the average monthly balance for each loan and report that as your outstanding mortgage principal as outlined above. Once you have done that for both loans, you can report it in TurboTax by following these steps:
- In the Federal > Deductions & Credits section of your return, scroll down to Your Home and click Revisit/Start next to Mortgage Interest and Refinancing (Form 1098)
- Answer the questions and enter the information from your Form 1098s. Use the calculated amount for Outstanding Mortgage Principal. For Box 3, Mortgage Origination Date, use the original purchase date even if the Form is for a refinance.
- Answer What kind of property is this loan secured by? Enter the old 1098 as your secondary home and the new one as your primary home.
- Answer Yes or No to We didn't pay any points.
- Answer Yes to Let's see if this is the most recent form for this loan.
- Answer Is this the original loan used to buy your property?
- Answer Is this loan a HELOC or a refinance? if it is not the original loan
- Answer Did you take cash out? if this loan is a refinance or HELOC
- Once you have entered both and are back in the Home loan deduction summary screen, click Done.
- Answer NO to Do either of these apply to this loan? Answer No even if it does apply, by using the mortgage origin date of the original purchase back in step 3, TurboTax will correctly apply the proper mortgage limit on your home acquisition debt.
- Enter the calculated outstanding loan balance again for the amount on January 1, 2022 in the first field. Leave the second field blank.
TurboTax calculates the average balance by taking the average of the outstanding mortgage principal on Form 1098 and your balance due on January 1, 2022. By reporting your calculated average balance for both, it will apply the mortgage limit based on that amount.
Entering your second loan may actually make your deductible interest decrease. This depends on your outstanding balances and the interest rate you are paying. While that could be because something was entered incorrectly, it could also be true if you enter the higher interest rate loan first.
