I am using TurboTax Desktop on Mac Home and Business with all latest updates.
I am having trouble understanding how TurboTax is calculating the mortgage interest deduction and average principal. Below is an example scenario similar to mine:
Let's say home was originally purchased in 2019 for 1,000,000. Refinanced in 2020 which was reported in 2020.
Refinanced again in 2021 generating two 1098 forms. But during the refinance to get lower rates I paid down the principal during closing. i.e the refinanced loan balance + my extra payment during closing paid off the existing loan. The originating principal on most recent 1098 is lower than the pay off on earlier loan.
Loan A
Pay off: 9,000,000
Paid off on: 02/10/2021
Loan B (latest refinance of loan A):
Loan amount: 850,000
Extra payment made by me during closing: 50,000
So loan A existed almost a month i.e. in January.
When I use TT and file in the two 1098 separately and then look at the Deductible Home Mortgage Worksheet I see that only one loan (Loan B) is mentioned in Part 1 Home Mortgage Loan Information under Loan 1. Loan A is not present there at all.
In Part 2. Deductible Home Mortgage Interest the average balance is just Loan B originating amount i.e. (850,000 + balance on Jan 2022) /2. It does not factor in the principal of Loan A at all.
The total amount of interest on line 14 is sum of the interest paid towards Loan A and Loan B and then it goes about dividing 750,000 with the average balance and multiplying with the interest to find the deductible.
This seems wrong to me as it is not factoring in the Loan A principal neither the principal payment paid down by me.
