CP28 Notice for 2024 Return: Multiple 1098s, Vacant Lots, and Mortgage Interest Limit Question after filing with TurboTax

Home Mortgage Interest reported on Form 1098 is defined as interest on a mortgage used to buy or improve your main home or a second home. Loan interest on a vacant lot held for future use and/or investment is considered Investment Interest. (See IRS Tax Topic 505 for guidance on what types of interest are deductible.)

Investment Interest is deductible but limited to your net investment income (see Publication 550, Investment Income and Expenses). This interest is an "Other Itemized Deduction" on Schedule A, which is relevant only if you itemize your deductions. Excess investment interest expense (greater than investment income) is carried forward to future years. 

Mortgage balances on investment loans are not included in the home mortgage interest limitation calculation.

According to IRS Pub 936, "You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017."

If your home mortgage balances exceeded the limitation, TurboTax would have adjusted the home mortgage interest that was reported on your return. It's possible to replace the amount calculated by the software, however. If you calculated this interest separately and entered your own value, this may have been more than the IRS allows.

The vacant lots would remain as investments whether you intend to sell them or hold them for future use.

It might be helpful to start a new TurboTax return to test the effect of properly reporting your loan interest. This exercise would provide some guidance in how you need to amend your return. Note that you can create as many returns as you like in TurboTax Desktop. For TurboTax Online, you would need to sign up and log in with a different email address.