Deductions & credits

Bostondoc84 · ‎January 31, 2021

Hello, and thanks for the the reply.

Respectfully, the fact that multiple users have reported the same issue after spending (as I have) hours with TT staff by phone and video chat suggests something may be up or, at a bare minimum, that the questions are reproducibly eliciting incorrect user input (also a problem). My situation, a 2020 refinance of a 2016 original mortgage between $750k and $1M, seems like it should be straightforward to handle though it has some tax implication subtleties in light of TCJA. The video chat person was unable to find any data entry errors, so perhaps it would be useful to walk through it here:

A. First 1098 (lender A, original 2016 loan which was in force until September)
— Data from 1098 entered verbatim from form received (mortgage interest, origination date in 2016 pre TCJA, principal as of 1/1/2020, box 7 checked)

— Q: Did you pay points? A: No.

— Q: Was this loan paid off or refinanced with a different lender in 2020? A: YES.

— Q: Is this loan a home equity line of credit or a loan you've ever refinanced? A: No, this is the original loan I used to buy or build my home. **This is a somewhat oddly worded question. I selected “No" because this is indeed the original loan from 2016. But, depending on how one reads it, I suppose one could interpret it as “refinanced” in the sense that it was paid off and replaced with a new loan.**

At this point, the calculated mortgage interest deduction TT comes up with looks correct. So we move to the second 1098….

B. Second 1098 (Lender B, September 2020 refinance)

— Data from 1098 again entered verbatim (mortgage interest, origination date in 2020, outstanding mortgage principal as of loan origination in Sept 2020, box 7 checked) ** As soon as I enter this data and click continue, TT cuts my mortgage interest deduction in half and switches me to the standard deduction. My expected refund decreases dramatically, and a tax due is actually generated.) **

— Q: Did you pay points? A: No.

— Q: Was this loan paid off or refinanced with a different lender in 2020? A: NO. **This loan, the new one, was not paid off or refinance. **

— Q: Is this loan a home equity line of credit or a loan you've ever refinanced? A1: YES. A2: “A mortgage loan I’ve refinanced” A3: No (have never pulled out cash)

I now get the "Thanks, we got all your mortgage and property (real estate) tax info” screen. Clicking through, I next get the "Let's wrap up your mortgage interest deduction” screen.

A. Review of first loan (lender A)

— Q: Enter your loan balance as of January 1, 2021, or the final principal balance if you paid off this loan in 2020. A: Entered the final principal amount prior to payoff per Lender A documentation.

— Q: Enter the date you made your final payment, or leave blank if you haven’t paid off your loan. A: Entered the date of funds disbursement from the refinance when the payoff was complete per Lender B closing documents.

B. Review of second loan (lender B)

— Q: Enter your loan balance as of January 1, 2021, or the final principal balance if you paid off this loan in 2020. A: Entered the loan principal remaining after December 2020 payment.

— Q: Enter the date you made your final payment, or leave blank if you haven’t paid off your loan. A: Left blank

After completing the review, TT still thinks my deductible mortgage interest is about half of the actual mortgage interest. Accordingly, it suggests the standard deduction. This behavior is suggests TT thinks we actually have double the mortgage debt we actually do, such that only ~half is deductible. In line with this hypothesis, If I go back and change the “outstanding mortgage principal” for Loan B to “$0”, the deductible mortgage interest now correctly reflects both 1098s. I think this should generate a Schedule A with the right numbers on it, but I would prefer for it to be handled correctly. I have read IRS Publication 936 (https://www.irs.gov/pub/irs-pdf/p936.pdf) in some detail and it confirms that a refinance of pre-TCJA mortgage debt between $750k and $1M remains deductible ("Refinanced home acquisition debt. Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing.")

I would be happy to hear what, if anything, I have done wrong here but am at a loss. Possibly this is some version-dependent issue as another user has proposed? I may next try “upgrading” to TT Live Deluxe and see what happens?

Thanks!