Incorrect adjustment for mortgage interest on refinanced loan

Forum|Forum|3 months ago
March 21, 2026
1 reply
195 views

My original loan was taken out in 8/11/2011. I refinanced this loan with outstanding mortgage principle of $1.2M in 3/31/2021. No cash was taken out. In previous years, TurboTax has correctly calculated the adjustment of the interest paid on the portion of the loan greater than $1M. This year, it says that none of my interest is deductible. When I look at forms, I see that on the Deductible Home Mortgage Interest worksheet that it has not filled in line 2, Average balance of debt acquired.... So the total Qualified loan limit is $0.

I have deleted my form 1098 and gone through the interview process carefully multiple times. Can anyone point out what I'm doing wrong? Should I overwrite "Average balance of debt acquired"?

Thanks in advance for your help.

ReneV4

Level 6

Since you refinanced, but took no money out, the IRS allows you to keep the $1M debt limit from your original loan. To help TurboTax understand this, follow these steps:

When editing your Form 1098, change your origination date to 2011, since this debt replaces the original debt
Mark it as a refinance. Even though you are using the original date, ensure you indicate that it was a refinance
Because your principal of $1.2M is still over the grandfathered limit of $1M, you should see a limited deduction*

*If you change the date to 2011 and you suddenly see 100% of your interest is deductible, then you would need to override to ensure you don't overclaim.

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user17741287918Author

Level 2

I tried this, but I still got $0 allowable mortgage interest. Any other suggestions?

user17741287918Author

Level 2

I looked at the Home Interest Worksheet in Forms, and saw that on the Smart Worksheet, for Item B, the question "Was cash ever taken out as a part of a refinance?" was answered Yes, even though I had carefully answered NO to this question. I changed the answer to no, and the deductible home mortgage interest was calculated correctly.