So I was able to resolve this by purchasing the downloadable app version which allows access to Forms mode. It took me about 2 hours to re-enter everything but I was able to get my refund back to where it should be. I spoke with customer support and I have a pending request in to refund the $115 that I had already paid for the online version.
The issue that I was having is that the loan that I refinanced was being added onto the total balance that included the refinanced loan. My original loan balance was $452k and we refinanced in 2020, so that loan was paid off and a new loan was taken out for $451k. The average of the two loans clearly doesn't exceed the $750k threshold, but in the Deductible Home Mortgage Interest Worksheet, the total being generated is $900k, triggering the "limited interest" flag.
Per TurboTax's example specific to a refinance in this situation:
George secured a $750,000 loan to purchase a home in January of 2019. In August of 2019 George refinanced the home when the loan balance was $740,000. George obtained a new loan for $800,000 to refinance the outstanding home loan, but uses $60,000 to pay off credit card debt and for closing costs on the refinance. George would be limited to deducting only interest paid on $740,000 of debt.
The way that I interpret that is, since I didn't take any money out of the loan, I should be able to deduct the mortgage interest on the average of the two loans which is $451,500k, which is well below the limited interest threshold.
This article has some good information: https://www.hsh.com/refinance/how-does-a-refinance-affect-your-taxes.html
I am not suggesting anyone do this because I am not 100% sure that it is the correct approach. I went through the Home Mortgage Interest Worksheets line-by-line and made sure everything was correct as best as I could interpret the instructions. It would be nice to get some additional support/clarification on this from TurboTax as there was a refinance boom in 2020 so I imagine this will be a common occurrence.
Good luck all,
Kevin
