While your entire mortgage interest is not deductible, due to being over the $1 million limit for loans of that age, enough probably should be that you would qualify for itemizing your deductions. This is particularly true if you pay property taxes and have other itemized deductions. TurboTax only seems to carry the numbers to the worksheet if you answer in a particular manner, so be sure you follow these steps because not all of them will make sense:
- 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)
- Edit your existing 1098. You should only have one that contains both loans.
- Answer the questions and enter the information from your Form 1098s:
- Box 1 Mortgage interest - Add the amounts together on both 1098s
- Box 2 Outstanding Mortgage Principal - Use the amount reported on your old loan
- Box 3 Mortgage Origination Date - Use the original purchase date back in 2017
- Boxes 5 & 6 - Use the combined totals form both 1098s
- Make sure Box 7 is checked
- Answer What kind of property is this loan secured by?
- Answer We didn't pay any points.
- Answer Yes to Let's see if this is the most recent form for this loan.
- Answer No to Is this the original loan used to buy your property?
- Answer Yes to Is this loan a HELOC or a refinance?
- Answer No to Did you take cash out? (assuming you did not take cash out when you refinanced in 2020)
- Once you are back in the Home loan deduction summary screen, click Done.
- Answer NO to Do either of these apply to this loan?
- Enter the outstanding loan balance on January 1, 2022 in the first field. Leave the second field blank.
Pay particular attention to steps 3 and 11. This will calculate your deductible interest correctly based on the $1 million limit. Although not every answer is consistent with your loan, all the forms reported to the IRS will be accurate.
