Average balance of debt

[Csmith60]

Hi,

We sold our secondary home in Feb. 2021(bought prior to 2017), we sold our primary home in May 2021(bought prior to 2017) and then we bought another primary home in Nov. 2021. 2nd home average balance for the 2 months was 651k and our primary home was 315k. We bought our new home for 662k. Turbo tax is saying my average balance for the year is 1628k but we never had more than 966k in any month. It is adding it all together like I had all 3 at once, but I did not. Either Turbotax needs to fix this or tell me how to fix it. Also, my new mortgage was sold to another lender in Dec. so my points from the original lender does not show up in the new mortgage?

[DawnC]

Please see this Help article - it details how to handle your situation.    

Contact TurboTax

[Csmith60]

Unfortunately this does not address my situation. 

[JillS56]

I am assuming that you are referring to the fact that you have received multiple 1098s and when you enter them it is adding all of the mortgage amounts together and then limiting your mortgage interest deduction.   When you have multiple mortgages and are claiming mortgage interest in your situation if you report the information on the 1098s TurboTax adds the amounts together which may lead to a limitation of the deduction because the balance is then overstated. To avoid this, make sure that you're not reporting the same mortgage balance twice.  In your case, make sure you are not reporting a balance for the mortgages that have been paid.

Under tax law, you're limited on the amount of home interest you can deduct. The limit is based on the loan amount and date of the origination of debt. We want to make sure we calculate this correctly for you. 

If you refinanced last year, you’ll have a Form 1098 from your previous lender and one from the lender you refinanced with. You’ll need both forms.

Follow these steps to enter your mortgage info:

1. Gather all of your 1098 forms related to your refinance (the form from your original lender and the form from your new lender).
2. Grab a calculator and add together the box 1 amount from each form. Enter the total in TurboTax as Box 1 Mortgage interest.
3. Add the Box 5 amount from each form and enter the total as Box 5 Mortgage insurance premiums. (If you weren’t required to pay mortgage insurance, these boxes will be blank on your forms and you won’t enter anything.)
4. Add the property tax paid from each form and enter it in the Property (real estate) taxes box.

Next, finish adding info for boxes 2, 3, 7, and 11 using Form 1098 for the original loan.

Multiple 1098s

[Csmith60]

I received 4 1098's. One for our 2nd home we sold in Feb., one for our primary home we sold in May. Then we bought a primary home in Nov. and in Dec our lender sold our loan to another lender. I did as you said for our new home(combined the 1098's). But I enter 3 mortgages, because that is what we had and it still adds all 3 mortgages together to get an average daily balance. But I never had more than 2 mortgages at any time. This causes turbotax to say I am over my limit and reduces how much I can deduct. When I walk through the IRS's instructions and do it all my interest should be deductible. 

[JillS56]

Your interest is deductible but you need to enter it as I explained.   You do not need to separate them between the 2nd home, a primary home sold and a new home purchased, and the assignment to the new mortgage holder.    Add the amount of interest each of the 4 1098s shows.   Enter the total of the mortgage interest from all four in Box 1 in TurboTax.   In box 2 enter the amount of the outstanding mortgage principal from the most current mortgage.    This should fix the problem.  

If you feel better by entering the 1098s for the 2nd home and primary home that you sold, you can do that but in box 2 make sure you do not enter a balance.   There was no balance for 2021 because you sold the homes.   The balances in box 2 for those two loans are what is messing the calculations up.  

The one 1098 from the mortgage holder on the new mortgage that was sold or assigned to a different mortgage holder, make sure the box 2 for this is also 0.   

[Csmith60]

Turbotax does not allow me to put 0 in box 2 for the 1098's. I really shouldn't put all 4 in, as 2 are prior to 2017 and the current one is this year and they have different limits. So if I have to put all 3 mortgages outstanding balances added together in box 2 then I will be over my limit. Turbotax should calculate it correctly. 

[JillS56]

Then do as I originally suggested.   Report 1 1098 in TurboTax.   Box 1 would be the total interest from Box 1 of all 4 1098s.   Box 2 would be the amount of the current outstanding mortgage principal.   

You are correct that if you put all 3 in you are going to be over your limit.   The only way to get the mortgage interest credit is to enter the way I state above.

[Csmith60]

If I do that will it mess up my state returns. All 3 homes were in different states and I have to file taxes in 2 of them.

[JillS56]

Have you tried entering "0" in Box 2 for the Outstanding Mortgage principal?   If you can do that on the 2 that were sold, then it should carry over to the state the correct state return as long as the state is indicated.   The key here is to not show the Outstanding Mortgage Principal on the two that you paid off.   Even on the one that was sold or assigned to another lender.   The Outstanding Mortgage Principal should only be the amount of your current loan(s).   Otherwise it will average and you will be limited if you exceed the $750K.

[Csmith60]

Yes in previous answer I said I could not put 0 in box 2.