Incorrect California mortgage interest calculations

I'm also seeing errors in the California mortgage interest calculations.

 

My loan was refinanced and then resold.  This gives me 3 different 1098 forms.  When I enter the 3rd lender tax deductable interest, my California taxes increase for some unexplained reason.  I tested by entering a fictious 4th lender and my California taxes increased again by nearly $400.  

 

I reviewed the CA 540 result and see for some reason the line "Interest you paid" line 8a, 8e and 10 all have a value of $-4067 or $-7362.    (resulting in a $400 tax increase, or with the test 4th a $700 tax increase)

 

I cannot see why this number exists.  I cannot see any reason why paying addition interest (a tax deductible event) would raise my taxes (State only).  I can't see why a 3rd or 4th lending would change anything.

I think there is a serious error here

 

 

Agreed - this portion of the CA software is flawed. It doesn't bring over any proper numbers from Federal and is not easy to follow. Per the help pop-up CA allows mortgage interest deductions on 1st and 2nd mortgages include HELOCs. I have the worksheets I used last year in my paperwork and see I was able to deduct more (compared to Federal due to new tax law in 2017) but TT seems to not be setup to allow for this very easily. Please fix this ASAP. We have paid for this software to be accurate and you promote that you'll get us the biggest tax refund or pay the lowest in taxes but so far that is not what is happening. As others have said, I am sure many people are paying too much to CA.

I'm having the same problem.  Like flandar, I have three 1098s -- the original lender, the lender to which the loan was transferred, and the lender that refinanced the loan.  Because the last loan was a refinance, it should use the same home acquisition debt as the prior loan (so I am not subject to the $750,000 limit).   I had to manually adjust the federal form to fix it so it would limit the deduction.  (The instructions for that worksheet were useless and contained no discussion or boxes to reflect refinances of pre-2017 limits.)

 

Now the California form wants to adjust for interest and points reported on form 1098 by -$12,557, which would increase my state tax by nearly $1,200.  There is no explanation for how that figure is calculated.  When I click on the link for "Why would I adjust my mortgage interest," I get a pop-up that tells me only that California does not subscribe to the federal $750,000.  But that difference, if applicable (which it is not), would increase my the deductible state interest, not reduce it like the software is doing. 

I agree that this is a very serious error.

 

I also spent hours trying to figure this out, and I noticed that the amount of the adjustment should not be a negative number, if you switched the number TurboTax calculated to a positive number, it looks to me that is the correct amount for the extra deduction.  However, I have not done the complete calculation on my own to double verify of the figure is accurate.

As you all have mentioned, I have also spent all day trying to figure out this issue.  Has anyone received an answer from TurboTax as to when this bug will be fixed?

Having same exact issue. 

Same here. What did you end up doing?

Turbo tax made a "stealth" update and added a question to the California question/income section to cover this special difference.

 

If you haven't filed already, you can now just review the California income section and enter the "ending" ballance of these 1098 interst paid forms and the calculation comes out right.

 

BUT I'M SCREWED, because I filed already, and now I cannot create an AMMENDMENT to change and fix this with the state!!

That's frustrating! Thanks for your reply.  I'll try that out! 

still same issue as of today... getting a negative number even after updating those fields to 0. 

frustrating

so if I adjustMortgage Interest Manually to 0, deductions go back to correct amount. 

But is it fine to Adjust Mortgage Interest Manually or what is the best way to correct it?

Same issue here, spent a whole day to study this question, I don't need to adjust my

mortgage interest

for California as my loan amount is lower than 750K, but Turbo tax insists on sending me there and gives me a negative number. 

 

Same question, can we manually change it to 0?

I found doing a software update created a new screen and fixed the calculations in the California State.  Be sure you have the latest version and check again.

I've go the same issue with the California mortgage and interest adjustment. Why can't the entire amount of mortgage interest be deducted like it is on the Federal forms?

I spent about 5 hours on this.  Went through 3 support agents, it's 10:15PM, and no answer...I'm calling it a night.   TurboTax, if you read this, I expect a refund.  This is the second time in 5 years I've spent the better part of a day trouble shooting your software.

 

For me there were two issues:

1.  Turbotax is calculating the CA adjustment assuming 1,100,000 in allowable principal.  This would be correct if I had a Heloc up to the allowable limit of 100,000k.  I don't.  I (and several agents) have verified the questions multiple times (federal and state sections), redone state, re-entered mortgage interest to trick TT, deleted the CA home mortgage interest worksheet using tools/delete sheet and re-run the state multiple times...no dice.

2.  In the process of doing #1, It sometimes deleted the ending balance screwing up the average principal calculation.

 

TT....if this many people have an issue, fix it.  The way I found this thread was an agent suggesting this had the workaround.  It does not, at least not for me.

 

Zac

Thanks for this community thread.

 

I encountered this issue in June, so TurboTax still doesn't have this resolved completely.

 

My situation is that I have a mortgage and HELOC both before Dec 2017.   I had a negative value in the Mortgage Interest calculation, which led me to begin doing research.   This thread will save me over $1000 in tax overpayment, so I really appreciate surfacing this error.

Hello stan_sd,

 

I would like to address your issue on TurboTax allowing the $100,000 in home equity debt.  Per Publication 936, page 10 for Home Equity Debt - ignore the first sentence and pay attention to the second sentence, "In addition, debt you incurred to buy, build, or substantially improve your home, to the extent it is more than the home acquisition debt limit ($1,000,000), may qualify as home equity debt.  Home equity debt is a mortgage you took out after October 13, 1987, that:  1) Doesn't qualify as home acquisition debt or as grandfathered debt, and 2) Is secured by your qualified home."  As an example, let's say your mortgage loan is $1,200,000 and the limit is $1,000,000.  The remaining $200,000 may qualify as home equity debt, since it exceeds the limit and does not qualify as home acquisition debt.  (Home acquisition debt limit:  $1,000,000 - debt over this limit may qualify as home equity debt.)  TurboTax is correctly calculating the $100,000 limit for home equity debt  (the smaller of the $200,000 loan excess which didn't qualify as home acquisition debt or the $1,000,000 limit) since the rules state that the amount that doesn't qualify for home acquisition debt may now qualify as home equity debt.  It doesn't matter that there is no HELOC, what matters is that excess does not qualify as home acquisition debt, but instead as home equity debt.  I hope this helps!  

Adding to post:  using Pub 936 for 2017 since CA does not conform to the federal $750,000 limit, they still allow the $1,000,000 limit on mortgages and $100,000 on home equity debt.

 

 

 

Mortgage interest

• Federal law limits deductions for home mortgage interest on mortgages up to $750,000 ($375,000 for married filing separately) for loans taken out after December 15, 2017 and no longer allows interest on equity debt.
• California allows deductions for home mortgage interest on mortgages up to $1 million plus up to $100,000 in equity debt.

https://www.ftb.ca.gov/about-ftb/newsroom/tax-news/march-2019/tax-deduction.html

I've noticed the same issue of negative amount for "Adjustment of Interest and Points Reported on Form 1098" on screen "California Mortgage and Home Equity Interest".

I also have 2 mortgages (2 properties, 2 loans) and one of my loan has been transferred from one lender to another lender sometime in the middle of the year. When I entered the beginning and ending loan balance, I entered "0" for the loan which is transferred to another lender as at the end of the year, the loan balance from that lender is 0. This made the negative number go away and changed to 0 value. I hope this is helpful and is a solution for you too.

Thanks a lot! this was helpful to me and helped me remove the negative adjustment amount that turbo tax was giving. Money saved !  

I did an amendment with the state and go extra refund back!

If you have more than one 1098 form, I will recommend you to combine all 1098 forms and enter as one. I am attaching a TurboTax link for the instructions how to do claim your mortgage interests.  Click here:

 

Multiple Form 1098s

 

Once the federal numbers are corrected, the state amounts should be adjusted. 

 

For tax years prior to 2018, your mortgage interest deduction is generally limited if all mortgages used to buy, construct, or improve your first home (and second home if applicable) total more than $1 million ($500,000 if you use married filing separately status). Beginning in 2018, this limit is lowered to $750,000.  For more information about the mortgage interest deductions, click here: Mortgage Interest deduction

 

 

This issue with the California mortgage interest calculation are still present as California taxes are not being calculated correctly. In fact they do not even add up right in the Federal 1098 Tax form for calculating federal taxes - really frustrating. Spent two hours with turbo tax "expert" in Florida yesterday to see why I had to pay California tax this year and I have been getting about 900 back the past three years - tried everything - she was very nice and helpful - she convinced me that the software was working correctly and I filed my taxes although both my federal and state taxes indicated I would be paying more although I only made slightly more in 2020 than 2019. Filed the forms. Federal tax form was accepted but California form was rejected. Email from turbo tax said there was a problem with the turbo tax software and I needed to log back in and they would "walk me through fixing it" - help instructions were useless - used help to ask for a person and said I had to call them and it was an 85 minute wait - got stuck in an endless loop where I was asked countless questions by robot - will try again tomorrow but have now spent more than 6 hours in total on this. Last year maybe an hour at most.

Can I ask for my money back? At least for the state filing? Is there better software out there? Maybe I should have just filed on the California FTB page? Will check out other options next year but this is really depressing that what seemed to be a useful set of software over the past few years is now so buggy you cannot trust it.

@sdrury62 Some of you have noticed an issue where your return has been in a pending status multiple days. This pending status means we noticed an issue that may have caused your return to be rejected and are doing an extra review to assess the reason it was flagged, resolve it for you, or identify what you need to do to ensure everything is accurate and your return is accepted.  If this applies to you, we will be sending you an email within 48 hours with confirmation that your return has been filed, or instructions for any additional steps that need to be taken to ensure an accurate return is filed, accepted, and you receive every dollar you deserve. We apologize again this has caused a delay in receiving your refund.

As of March 16, 2021, TurboTax is still wrong for tax year 2020. Since California does not conform to the 2018 federal changes, my mortgage deduction should be about $1500 higher than on the federal form. TurboTax's calculation REDUCES my deduction by almost $1500, meaning I would be taxed on $3000 more than I should be.

 

The main issue comes down to the home equity cap. I have a $200,000 HELOC. Rounding the numbers, $150,000 is invested in the home and home improvements. $50,000 was spent on other things. Now let's look at  California's 2020 Instructions for Schedule CA (540) https://www.ftb.ca.gov/forms/2020/2020-540-ca-instructions.html, which give a little more detail than the article cited by @DeniseMCPA:

 

Line 8 – Home Mortgage Interest

 

Federal law limited the mortgage interest deduction acquisition debt maximum from $1,000,000 ($500,000 for married filing separately) to $750,000 ($375,000 for married filing separately). California does not conform. If your deduction was limited under federal law, enter an adjustment on line 8, column C for the amount over the federal limit.

 

Federal law suspended the deduction on up to $100,000 ($50,000 for married filing separately) for interest on home equity indebtedness, unless the loan is used to buy, build, or substantially improve the taxpayer’s home that secures the loan [emphasis mine]. California does not conform. If your deduction was limited under the federal law, enter an adjustment on line 8, column C for the amount over the federal limit.

 

They’re saying that before 2018, Federal law capped home equity deduction at $100,000 unless used to buy, build, or improve the home. In other words, you could use the $100,000 to buy groceries or tuition or a car. There is no cap if invested in the home.

 

The thing that TurboTax misses is that the home equity limit does NOT apply if you invest the equity debt in the home. TurboTax, on the California return, applies a hard limit of $100,000 for ANY home equity debt, so it says only 50% of my $200,000 loan is deductible. Instead, for the California return:

 

$150,000 is invested in the home and is fully deductible.

$50,000 was spent on other things. Because it is less than the $100,000 limit for non-home spending, it's also fully deductible.

 

Bottom line, I have to make manual adjustments to deduct the full $200,000 home equity loan in California.