Hi. I received multiple 1098 forms this year because we sold and bought a house. Our new mortgage was sold. We also significantly paid down the principal on the new home loan after receiving the proceeds from the first. As a result, the "simple average" method that TurboTax uses for calculating how much interest is deductible is inadequate for our circumstances. To compensate for this, the desktop software allowed me to override the TurboTax calculation, which I did. But the Home Mortgage Deduction worksheet populated by the software has incorrect information. Does this worksheet get submitted to the IRS during online filing? And if so, how do I correct it?
No, the worksheet does not get submitted. And as long as you have sufficient mortgage debt to support the deduction and don't exceed that $750,000 limit then you should be fine.
When I looked at the preview for my official tax return, the erroneous worksheet was included with what was going to be filed, even though the IRS does not require this worksheet to be filed. I went back through the mortgage deduction section of TurboTax and saw that there was a link that described mortgage interest scenarios that the software does not support. My scenario was one of them. To deal with this problem, the software suggested creating a substitute 1098, with the amount of interest you want to deduct and "$1" listed as the principal. That causes TurboTax to list the full interest deduction in your Schedule A, but it does not prepare a worksheet, thus an erroneous worksheet does not get submitted with your tax forms. I found this to be an awkward hack, but it worked. Note that you should also list the property tax paid on the substitute 1098 so that the amount is accurately reflected in your state return. I separately documented my calculations and the supporting material for my records in case of an audit.