Bug in Software? Full mortgage interest deduction not be calculated when entering multiple mortgage lenders.

Bingo!!!! That is the issue.  There is a known problem with Home Mortgage Deduction.  TurboTax is working to fix the problem and the many other issues. There are many changes due to the CARES Act that require software upgrades.  We have not been given an  expected date for the fix yet.  Please check back often to see if you can file your return.

 

This was the work around until the deduction was fixed in the sooftware and you got it.

 

You should combine all of the 1098s directly related to the refinance and enter it as one 1098.  An example of this is if you refinanced two loans into one loan. Any 1098s not directly related to the refinance should get entered separately.

 

Currently, the home mortgage interest deduction (HMID) allows itemizing homeowners to deduct mortgage interest paid on up to $750,000 worth of principal, on either their first or second residence. This limitation was introduced by the Tax Cuts and Jobs Act (TCJA) and will revert to $1 million after 2025.

 

Glad you were able to resolve the issue.  It is imortant to get the numbers correct on the return.

I noticed the same thing yesterday and figured there was an error.  I kept wondering why my deductions were much less than last year and nothing had really changed. Honed in and noticed it was only calculating about 40% of my mortgage interest (had similar situation where original loan was sold to another lender, then we refinanced to a 3rd lender).  So question can we submit our taxes with all of the 1098s combined or should we just hold off until the bug is fixed?  Any insight on when that will be???

The issue has to do with the fact that you had a refinance as well as a loan sold to another lender. 

Currently, TurboTax has instructed us to combine multiple 1098s together.   But if your loan is sold, then you don't have two loans - you have one.  The loan was sold outside of your control and the only thing that changes is the bank to whom you make payments.  So you only use the ORIGINAL 1098 for that entry.

Once you're done with the sold loan portion, go ahead and follow these official steps regarding the refinance:

 

How do I handle multiple 1098 mortgage forms?

 

If you have multiple 1098 mortgage forms, you’ll enter them one at a time. After going through the steps with the first one, you can add a lender when you get to the Mortgage deduction summary screen. (In the case of a refinance, it's best to enter the 1098 from your original loan before the 1098 from your refinance.)

But, if they're both from the same lender, and one of them has the “Corrected” checkbox marked at the top, enter the corrected 1098 and discard or shred the other one.

 

 

What do I do if I have multiple 1098s from refinancing my home debt?

 

If your total home debt is under $375,000 ($250,000 for married filing separate) there is nothing new for you to do in 2020. Enter each 1098 as you normally would.

Home Debt Over $375,000

Under tax law, you are 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 information:

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 interest, 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.

 

What if I have more than two 1098s?

You should combine all of the 1098s directly related to the refinance and enter it as one 1098.  An example of this is if you refinanced two loans into one loan. Any 1098s not directly related to the refinance should get entered separately.

 

What if I paid points?

Points on Loans Paid Off in 2020: Enter the points on your 1098 you have started and mark you paid off the loan when promoted.

Points on Loans on New Loans: You will want to enter a separate 1098 to cover these points paid. When prompted, enter 0.00 for Boxes 1, 2, 5, and the Property (real estate) taxes box, and checkbox 7, as you’ve already entered the details on your first 1098. For Box 3, add the date in 2020 when the loan originated.

 

@Neutrinoshead

I thought that I am the only one having trouble with getting the mortgage interests correctly entered.  TurboxTax should be ashamed of itself to have such a bug that could be fixed easily.  As I looked into the worksheets, I found that Turbotax basically add the two mortgages together to come up with the average running mortgage of 2020 for you even the two mortgages did not exist at the same time.  A simple fix would be to do a weighted average (based on the months of the two mortgages reported).  Hope that Intuit will get this bug fixed soon.  As the time being, if you have the same issue as I have (one loan of about $700k for 7 months that is refinanced down to $500k for the rest of the year, which was calculated as an average of $1.2mil now, totally wrong) , two solutions could get this resolved: 1) put all interests into one 1098; 2) overwrite the Turbotax calculated "deductible amount of interest" in the "Tax & Int Wks" with the correct amount of combined interest on line "Limited Amount to Report on Sch A, line 8a".  

 

Again, I hope that Intuit's technicians see this discussion and get this bug fix soon.

How to fix it in 2019 return? When I checked my last year return, TT calculated wrongly. how do I amend it?

What are the steps to fix it? This is only in CA return? Federal adjustment is fine.

Your 2019 California information flows from the Federal,  Then the interview will make adjustments.

 

To amend a return 

Some quick ground rules:

1. Be sure the original return was filed and accepted.
2. Save the original return before you start the amendment
3. Change the name of the amended return.
4. DO NOT go back into the return or change anything before you start the amendment process.
5. Gather everything you need before you start.
6. Complete the entire amendment process before you log out.

 You can correct a return that you've already filed and had accepted.  Select the year that applies and use this guide to proceed.

Select your tax year for amending instructions:

• 2020
• 2019
• 2018
• 2017

For additional information please refer to  How to Amend

 

 

 

 

@SK250

I refinanced 3 times in 2020and every time loan got sold to a new servicer . Therefore now i have 7 1098s.

Do i need to add all the 7 together ? What would be the Name of the Lender ,  loan amount in the combined 1098 and finally what about the Origination Date ?

Combine all of the 1098s directly related to the refinance and enter it as one 1098. 

Name the current lender, use loan amount on the last 1098 issued, and the latest origination date.

Any 1098s not directly related to the refinance should get entered separately.

Can you pls explain what does "1098 not related to refinance means" ? I only have 1 loan and some of the 1098's are related to refinance and some due to sale of the same loan to a different vendor.

These below are all related to the Same Loan. Can you pls confirm which would are not related to refinance ?

 

1. Original 1098

2. First Refinance 1098

3. First Refinance/New Servicer 1098

4. Second Refinance 1098

5. Second Refinance/New Servicer 1098

6. Third Refinance 1098

7. Third Refinance/New Servicer 1098

Based on the information above, it appears that you refinanced three times and the loans were purchased each time.  The refinances are the loans initiated by you for whatever reason.

 

Use this link for additional information:  Mortgage Refinance Deductions

 

Mortgage interest is usually reported on Form 1098, Mortgage Interest Statement. After you enter your 1098 in TurboTax, we'll ask a series of follow-up questions to make sure you're qualified to take the deduction.

For tax years 2018 through 2025, you can only deduct the interest from the amount of your loan that was used to buy, build, or improve the home that it’s secured by.

If you’ve ever used part of this loan to pay for things other than this home, you cannot deduct the interest from that amount of the loan, even if the transaction didn’t take place this year.

Don’t worry, we’ll help figure out what amount of interest you can deduct.

Examples of common ways you might have used this money not on your home include:

• Making a downpayment on a different home
• Funding improvements on a different home
• Making a payment on a different loan or debt
• Having miscellaneous large purchases

Example: John took out a home equity line of credit on his home on Tuberose Street for $40,000. He used $25,000 to remodel his kitchen and bathrooms in his Tuberose Street home, and $15,000 as a downpayment on a second house on Snowdrop Lane. He can only deduct the interest he paid on $25,000 he used to improve his Tuberose Street

I did not take any cash out  and have only 1 home mortgage ..

What do i do with the following ? , as when i add each of these 1098 , Turbo tax is adding the Remaining Loan Balance and total become more than 1Million and my return become very less, whereas the loan amount was never more than 350k.

 

1. Original 1098

2. First Refinance 1098

3. First Refinance/New Servicer 1098

4. Second Refinance 1098

5. Second Refinance/New Servicer 1098

6. Third Refinance 1098

7. Third Refinance/New Servicer 1098

In my case I have a limited home mortgage interest deduction.  For the reasons mentioned in other postings, TurboTax is not calculating the interest deduction correctly.  I just spoke to TurboTax customer service and the representative suggested that I manually override the limited home mortgage interest deduction to correct for the bug in the software instead of changing any of the inputs relating to Form 1098.  I expect either approach would get you to the right end result.  Since the information on Form 1098 is furnished to the IRS, I was concerned that changing any of the inputs might trip a flag for the IRS.  I am able to override the limited mortgage interest deduction on the "Mortgage Interest Limited Smart Worksheet".

 

Hi 

would you please tell me how to find and override the limited mortgage interest deduction on the "Mortgage Interest Limited Smart Worksheet".

This is maddening!

thank you

 

Does TurboTax have any way of implementing the guidance from Publication 936 that clearly indicated that, even if a mortgage origination date is after December 15, 2017, the debt is considered "incurred" prior to December 16, 2017 so long as certain conditions are met?  TT is treating my mortgage interest deduction as limited because my mortgage (for >$750k  but <$1M) was incurred in Feb 2018.  However, the publication provides "a taxpayer who enters into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, is considered to have incurred the home acquisition debt prior to December 16, 2017."  That is exactly my situation, which means I should be subject to the $1M cap, and my mortgage interest deduction should NOT be limited. 

 

I can only get to the right deduction by choosing an artificially low "outstanding loan balance on Jan 1, 2021" and I can't edit any of the underlying worksheets to either indicate that the limit doesn't apply to me or to replicate the work from the Pub 936 worksheet.  This is exceptionally frustrating.

 

 

Hi.  I am using the download version of Turbo Tax Premier for the Mac.  In the upper left hand corner click on "Forms".  Scroll down to the Form called "Tax & Int Wks" and open it.  Scroll down to "Mortgage Interest Limited Smart Worksheet" and go to item A 2.  The amount of the interest deduction is in blue which means you can edit it.   

I think you make a good point.  Instead of changing inputs to try to trick TT into coming up with the right deduction, you may want to just override the interest deduction with the amount you believe to be the correct amount as was suggested by TT customer service.  You are not required to submit your calculations to the IRS.  However, you should document your calculations in case you are ever questioned by the IRS.  

Thanks!  That worked! I hadn't noticed that the interest amount on that worksheet was editable.

 

That said -- it's annoying to have to come up with a work-around for a tax law that went into effect 3 tax return cycles ago.  It's particularly frustrating because TT seems to have changed their approach on this point this year; in the last two years, it just flagged that I needed to go look at the IRS publication and then invited me to put in the number that I calculated to be the correct deduction.  This year, I was really hopeful that they'd figured out how to automate it (since I no longer had the option to input the value myself), only to realize when double-checking the way the form had filled in the numbers, that it was materially haircutting my deduction, with no real explanation.   Anyway, thanks to GWR08 for the help and I hope TT figures out a way to fix this issue before this limitation rolls off in 2025!

So after I combine the interest paid in Box 1, should I then check the box below it that states "The interest amount I entered is different than what's on my 1098."

Thanks

I have a similar, but different situation.

 

We sold and bought a home in September.

 

The sold home was ~$500K in principle.  The purchased home was >$1M, and we have 2 1098's, one from the initial mortgage and one from the back who bought the mortgage.

 

I've played around with "gaming" the tool a couple of different ways, to include combining the 2 1098s on the new purchase, yet it seems to always reduce my deduction no matter how I enter it.

 

Can you please provide guidance so I can get the full - I guess up to $750K - deduction?  Maybe I'm doing something wrong with the sale...don't know.

 

Thanks

Hi.  Please read my previous posts and you will find the answer to your questions there.  Basically, all you need to do is manually enter what you believe to be the correct mortgage interest deduction. 

you cannot override values in the worksheets themselves in the online Version! 

i appreciate your response, unfortunately in the online version you cannot manually update forms 😡

Hi @paulhey  I have the (almost) exact same problem as you. I am using TT premier desktop and there is a knowledge-base provided (a link that branches off the 1098 entry page) that seems to recommend a workaround and calculations for our situation. Sorry for the long post, but I hope this will help you out. I also really hope TT issues a fix into the software that eliminates the need for a workaround (the whole reason TT exists is to do these calculations for us so I would hope they find it a requirement). 

 

I'll continue to try and find an answer from TT and please do the same and let me know if you find anything out (I have searched the support page and messaged numerous "experts", but no one has provided a simple and clear answer yet.)

 

Best!

Galen

 

I had 2 "loans" in 2020 (for which I have interest and points to deduct).

Loan 1 for Home 1 - I sold this home in December of 2020. The loan originated before 2017 and was for less than $1MM. I received 1 1098 from the Bank (we'll call bank A)

Loan 2 for Home 2 - I purchased this home in August 2020. The loan originated in 2020 and was for more than $750k. Adding to the issue, Loan 2 was sold to another bank in 2020, so I received 2 1098s for this loan (from Bank B and C)

Here is the guidance I received on how to solve this from TT Premier desktop

 

For Loan 2 (that was sold to another lender):

1. Add the Mortgage Interest Received, Mortgage Premiums (if any) and property tax amount from each form and enter the totals for the original lender only in TT. 
   2. Enter the remaining items from the original lender 1098 loan for the Outstanding Mortgage Principal (Box 2), Mortgage Origination Date (Box 3), and the checkbox on box 7 (address of property securing the mortgage)

For the multiple loans (Loan 1 - before 2017 and less than 1MM and Loan 2 - after 2017 and more than 750k)

Home 1 ($1mm limit)

1. Calculate the average balance - (beginning balance + ending balance)/2
   2. Calculate the percentage to deduct -1,000,000/ average balance = 1 (do not go over 1 or 100%)
   3. Calculate the deductible amount of Interest - $total interest * 1  (Report on Box 1 on the 1098)
   4. Deductible Interest =$18,000 (Enter for Interest on Box 1 on 1098 for new home)
   Home 2 ($750,000 limit)
   1. Calculate the average balance - (beginning balance + ending balance)/2
   2. Calculate the percentage to deduct -750,000/ average balance (do not go over 1 or 100%)
   3. Calculate the deductible amount of Interest - $total interest * percentage to deduct (Report on Box 1 on the 1098)
   
   Box 2- Make sure you enter $0 on each 1098.
   Total Amount of Interest Deducted on your Tax Return = deductible amount of interest on Home 1 + Home 2

 

Questions outstanding

Do Check the box in TT that asks if the amounts I am entering for box 1 are different than my 1098 (and if so, what do I enter in the subsequent notes?)

What about points, I paid points for Loan 2, do I just enter those for Loan 2 in TT ?

Is there a knowledge base or expert that know about this issue that can weigh in on if the software will eventually be supporting this vs asking users to implement the workarounds above?

 

 

 

 

In my case I had 2 mortgages with different banks on two properties for part of the year. One of the mortgages was before 2017 and one was new in 2020 plus I refinanced the 2020 mortgage.  Not sure if Galen had multiple mortgages in between buying and selling a home.  Anyway, based on my understanding of the rules for applying the limits, if one has multiple mortgages at the same time, one needs to aggregate their different mortgages to determine where they are with regard to the limits. Even if the individual mortgages are below the limits, in the aggregate they may not be.  Plus, in my case I had different limits to deal with.  So, as one can see, this can get pretty complicated (which may be one reason why TT doesn't have a fix for this yet).  I ended up creating a spreadsheet that tracked all of this in the aggregate by month, applied the respective limits, and then pro-rated the interest similar to how it was described by Galen.  For me it would have been difficult to determine how to change Form 1098 inputs on TT in order to come up with the right interest deduction.