There's a question/concern at the end of this post. Don't miss it.
Wow! They've really changed the screens and presentation with the online version. I personally find the online version to be extremely limited in it's capabilities. For example, with the CD version I can switch to forms mode and see the actual forms. You can't do that with the online version until "after" you pay your online turbotax fees. But once you pay those fees, it's just not possible to "clear and start over" with the return, if you need to. It's easy with the CD version. Just delete or rename the .tax2020 file, and it's just like you are starting the CD version of the very first time, when you fire it up. But enough of my rambling.
yes for both houses since TurboTax will allocate your personal portion of qualified interest over to the deduction section for me?
I assume you mean both "loans", as there's only one property involved here. Or did I miss something?
You'll select yes for both 1098's, because the interest is qualified. It's qualified, because the loan was/is secured by the property the loan was for.
As for the pro-ration, it's based on the total interest paid during the tax year on the property, regardless of how many lenders you paid that interest to during the tax year. So basically, if you placed the property "in service" on say, Dec 1st for example, then roughly 1/12 of that total interest paid during the tax year is claimed on the SCH E as a rental expense, with the remaining 11/12 of the interest listed as an itemized deduction on the SCH A for the 11 months it was your primary residence.
This will also hold true for the PMI you paid in that first year. But it's really no big deal that only 1/12 (roughly, using my in service date) of the PMI will be a SCH E expense the first year with the remaining a SCH A expense. If the property remains classified as a rental for the entire 2021 tax year and beyond, then the PMI will be fully deductible on the SCH E from 2021 and forward.
Also keep in mind that chances are pretty good that the total of all your SCH A deductions will not exceed your standard deduction. So it's a good bet that even if you claimed all the interest and PMI on SCH A, it still wouldn't exceed your standard deduction and would have no impact on your tax liability. So claiming only 1/12 of that PMI on the SCH E is better than not being able to claim a penny of it on the SCH E.
You say you refinanced this property in 2020. Assuming Loan 2 is the new loan, I take special note that you paid more interest on the new loan in 2020, than you did on the old loan. There's a number of reasons for that, as we both know. But the concern I have is the amount you refinanced.
If you did a refinance of the property and took a "cash out", that has an impact on the amount of interest you can actually claim. Whereas if all you did was refinance the property for the balance due on the old loan at the time of the refi, then there's no cash out and nothing to be concerned about here.
