@doT
This is precisely the problem. It will make your average mortgage balance 1.5x what it should be because it is doing a moronic old loan / 2 calculation which doesn’t apply for a closed refid loan (only for a current loan).
I do not see a way to manually correct this in the worksheet however because the calculation for the mortgage interest for loan #1 (the old closed loan, or the $400k added in incorrectly in your example) is a forced calculation — I can not override the way it calculated the combined average mortgage balance across both loans without deleting out the old loan (in which case it won’t include the paid mortgage interest). Only other way is to input an inaccurate average balance on the current loan that’s exactly less by the erroneous amount of the original loan. Either way will generate false worksheets in the eyes of the IRS should you get audited. This should not be the solution TurboTax and Intuit provides — they NEED to fix their software which incorrectly calculates the average balance when a closed refinanced loan has a zero balance.
This is not rocket science. The software for CA should ask if the loan is a refi like it does for federal and then calculate based off the final balance prior to close for the original loan; alternatively it should allow you to manually enter your average mortgage balance across both loans for the year as a separate number instead of calculating it erroneously. There is no option to override the worksheet because of the forced calculation adding both together in error.
For me, this makes the denominator 1.5x greater over the $1.1M CA limit and so my ratio goes from like what should be .9 to 0.6, losing out $17k in claimable interest deductions, or a loss of around $4k in my refund.
