This seems like a problem that would have been discovered by others by now but alas, I could not find any pertinent posts.
I have no mortgage per se on my primary residence but I have a HELOC secured by my primary residence that I use from time to time as a cash flow solution. The TurboTax "Learn More" guidance rightly/correctly explains that “You can now only deduct the interest from the amount of your loan that was used to buy, build, or improve the home that it's secured by meaning it acts as collateral for the loan to protect the lender.” In 2023 the outstanding principle/balance on this loan was $0 the entire year except for a 3 day period when I used it to buy a truck. The $59 interest expense was duly reported on a 1098. The allowable interest deduction in this case is $0 so I can avoid the impact of the subject problem by simply not making the entry in TurboTax in the first place. That said, this seemed like an issue that should be reported for the general good.
In the TurboTax dialog...
- Q: Is this loan a home equity line of credit (HELOC) or a refinance of a previous loan?
A: This loan is a home equity line of credit (HELOC). - Q: Have you used the money from this loan exclusively on this home?
A: No, I used some or all of this loan on a different home or on something other than a home.
For the purpose of determining the deductible amount, TurboTax gives me the "Help me figure this out." or "I'll enter it myself." options.
- The "Help me figure this out." path asked ...
Q: Since you first took out this loan, how much has been spent to buy, improve, or build the home it's secured by? A: $0 (When I experimented with a non-zero amount there was no follow-up question to collect info needed to determine the deductible/non-deductible split.)
Q: What was the balance of your mortgage loan on December 31, 2023? A: $0
Q: This loan was paid off during 2023? A: I tried both yes and no. - The "I'll enter it myself." path asked...
Q: What was the balance of your mortgage loan on December 31, 2023? A: $0
... It never asked for my determination of the deductible portion of the interest.
No matter what path I followed the end result was that the full $59 interest amount was incorrectly carried over to Schedule A.
Also, using the Forms View I found the following curiosities recorded in the Mortgage Interest Worksheet ...
- Q: Was this loan the result of refinancing a previous loan? A: Yes
- The full $59 interest amount appeared to be classified as Acquisition Interest.
This appears to be a bug in TurboTax.
