The form is now working, in the sense that it allows filing, but it's still not correct for refinances subject to the mortgage interest limit (although it's not egregiously far off). The interest deductibility limit should be based on the average balance for the year. Pub 936 allows either a simple or a more detailed way to calculate this, and unfortunately TT isn't using either of those.
Say I have a loan whose outstanding principal on 1 Jan 2021was, let's say hypothetically, $1.5-million. On April 1, I refinance the loan, paying off the principal and taking out a new loan for the same amount--let's say, to simplify calculations, $1.4-million. I then make payments on the new loan, and by Dec 31 the remaining balance on the new loan is $1.2-million.
The simple Pub 936 calculation simply averages the Jan 1 balance (which is on the old loan) and the Dec 31 balance (on the new loan), yielding an average balance (1.5+1.2)/2 = 1.35-million. If I'm subject to the older $1-million limit, then I can deduct 1/1.35 = 74.1% of my interest; if I'm subject to the $750k limit, I can deduct 0.75/1.35 = 55.1%.
The more detailed Pub 936 calculation calculates an average balance for each loan separately, and then an average of those weighted by how long each loan was in effect. The average balance for the three months I held the older loan is (1.5+1.4)/2 = $1.45-million, the average for the 9 months I held the refi loan is (1.4+1.2)/2 = $1.3-million, and the weighted average of the two is ((1.45*3)+(1.3*9))/12 = $1,337,500. If I'm subject to the $1-million limit I can deduct 1/1.3375 = 74.8% of my interest, and if I'm subject to the $750k limit I can deduct 0.75/1.3375 = 56.1%.
What TT is doing instead of either allowable calculation is simply using the average balance for the refinanced loan--that is, for my example it would use the average of the starting balance of the new (April 1) loan and the Dec 31 balance for that loan, (1.4+1.2)/2 = $1.3-million, and use that to calculate that I can deduct 1/1.3 = 76.9% of my interest if I'm subject to the $1-million limit, and 57.7% if I'm subject to the $750k limit. Which isn't very different, but also isn't correct.
So the point is that TT's calculation not only appears to be wrong according to either Pub 936 method for calculating average balance, but also can lead someone who's refinanced and is subject to a limit to claim too large a mortgage-interest deduction. That's very bad.
The only two ways I see to fix this for the moment are the old combine-1098s method (which in effect implements the simpler Pub 936 approach) or to override the calculated average balance in the Ded Hom Mort worksheet with a correct figure calculated outside TT.
