Deductible Home Mortgage Worksheet Errors

[nichojo6]

The 2020 TT mis-calculates the average mortgage values and results in errors on deductibility of mortgage interest. I have had my original mortgage sold and refinanced three times in 2020, and I have three 1098s. The original loan was greater than $1M. After I enter the 1098 values, including origination dates, TT adds the the value of all the loans at original value (Box 2) instead of averaging them over the  period for which they were held during the year . From the work sheet it appears TT incorrectly states each loan is outstanding for the full 12 months, despite the fact that I entered shorter periods of time for each loan.

[j861208]

This has been an issue since 2019 and TT has still yet to fix this issue.

I am having same issue where I refinanced the mortgage and have two 1098 from the same lender.

When both 1098s are entered one by one, TT shows the the amount of outstanding balance x2 the actual balance I owe now.

This is online version and I do not question such as “Do any of these situations apply to you?” for mortgage interest on your home acquisition debt nor an option to update "home mortgage interest worksheet"

@TurboTax Please fix this issue!!

[nichojo6]

Just in case - assuming TT remains as it is and the Tax and Interest worksheet require a manual entry for deductible interest. Here's the formula for multiple 1098s on the same loan/house. For this example I'll assume 3 1098s for the same home in 2020 (this will work for as many 1098s as you might have for the same home). No cash out. The idea is to calculate the average loan balance. I suggest 'weighting' the balances for the months the loan balance was carried. The Loan Value (LV) is the mortgage balance in each Box 2 of the 1098. The months held (M) is the number of months held in 2020 for each of the loans.

Average Balance = [LV1 * (M1/12)] + [LV2 * (M2/12)] + [LV3 * (M3/12)]

For instance, you have 3 1098s; $1,230,000 for 2 months; $1,225,000 for 3 months, and $800,000 (you won lottery and applied to loan 🙂 ) for 7 months.

Average Balance = [1,230,000 * 2/12] + [ 1,225,000 * 3/12] + [ 800,000 * 7/12] = $977,917

To establish your limit, divide $750,000 (assumes all loans are post 2017)  by the Average Balance you just calculated. For the example here, the Limit Ratio = 750,000/977,917 = 76.7%

Now multiply this ratio by the TOTAL mortgage interest from the three 1098s and you get your deductible Mortgage Interest. 

Boom!

Keep in mind that if you have a second home you're also considering, simply add that average balance and calculate the Limit Ratio, and then apply that against the TOTAL Mortgage interests from the two homes on all the 1098s.

Theres another thread on this @Monsterdaddy 

[nichojo6]

BTW, as a follow-up to the previous manual calculation, I recognize that using the Box 2 value as each loan amount is not precisely correct. One should use the average of the origination value and the ending value for each period. However, for the purpose of establishing an average over 12 months, it doesn't make a significant difference, as payoff amounts within a fraction of the year don't amount to much. Just saying.

[DianeW777]

Current solution: My advice right now is to enter only the existing balance with the open mortgage and lender as of December 31st (current mortgage) in your Form 1098 entry. Because of the limitation on the mortgage interest deduction you should put $0 or $1 in the other Forms 1098 entry. This will solve the problem and technically the IRS does not require that you fill out 1098s because they are not required to go with the tax return. This should resolve your issue and you have your documentation which in all likelihood you will not be asked to provide it later.

After review this does provide the correct results for now and you will be able to move forward to complete your tax return.  If you are using TurboTax Desktop continue to update each time you use it.

[jlbrick]

This is a duplicate of this issue: https://ttlc.intuit.com/community/tax-credits-deductions/discussion/bug-with-refinance-on-a-large-mo...

[DMarkM1]

Entering multiple Forms 1098 is a known issue in TurboTax.  Some TurboTax customers are experiencing an issue with their Home Mortgage Average Balance. This can cause in the the Home Mortgage Interest to be incorrectly limited.

If you're experiencing  the issue above,  please go here to receive email notifications when any updates related to this issue become available.