Deductible interest on refinanced mortgage

[terrypam12]

I noticed that this problem was discussed in January of 2019.  Seems Turbotax still hasn't fixed what appears to be a bug.

I refinanced twice during 2020 so I received 3 1098 Forms.

However, on the Deductible Home Mortgage Interest Worksheet, TurboTax adds the full amount of all 3 loans together (even though 2 of them have been paid off) to calculate the average balance of all home acquisition debt , so my debt appears 3 x larger than it should and now exceeds the loan limit, resulting in a limited interest deduction.

Does anyone know how to fix this?

[terrypam12]

I noticed that this problem was discussed in January of 2019.  Seems Turbotax still hasn't fixed what appears to be a bug.

I refinanced twice during 2020 so I received 3 1098 Forms.

However, on the Deductible Home Mortgage Interest Worksheet, TurboTax adds the full amount of all 3 loans together (even though 2 of them have been paid off) to calculate the average balance of all home acquisition debt , so my debt appears 3 x larger than it should and now exceeds the loan limit, resulting in a limited interest deduction.

Does anyone know how to fix this?

[WendyN2]

If you no longer have an active loan with a previous lending institution, then you will need to delete that lender from your return information completely, otherwise the TurboTax system will do what you are saying it is doing and add all information up that is still residing within the system for your return. You might also want to check the 108s that you received and make sure that the amounts on those are also correct. 

[terrypam12]

The IRS has copies of the 3 1098s I received.  If I don't input the info on 2 of them won't that trigger a problem with the IRS?  Also if I purge those 2 1098s how will I get credit for the interest I paid on them?

[KrisD15]

Enter the 1098 Forms and continue through the interview. 

If you enter the forms in order, and answer ALL the questions correctly, the software can do the math, but it is a sensitive area. 

I suggest (if you know you are not over the debt limit and the loans were used to buy, build, or improve the property which secures them) you can continue to the adjustment screen and enter the full amount of interest you are allowed to claim. 

The TurboTax worksheets are part of your personal copy of your documents but are not transmitted to the IRS with your tax return. 

[terrypam12]

I know I can go to the Tax and Interest Deduction Worksheet and override the line for Limited amount to report on Sch A, Line 8a which I did.  That does give me the proper deduction on Schedule A but Turbotax should calculate that number correctly (which it doesn't).  In order to get credit for all the interest paid the debt for couples must be less than $750000.  If you have 3 1098s due to refinancing and mortgage companies selling the loan the program takes the average amount of each loan (determined by adding starting balance to ending balance and dividing by 2) then ADDS THEM TOGETHER and calls it the Average balance of debt acquired after December 15, 2017.  It's not the average it's the TOTAL Turbotax uses.  In my case my outstanding loan was never over $640000 but Turbotax uses the total of all 3 loans (all on the same property and 2 of which were paid off due to refi) giving me an AVERAGE balance of $1,276,000 which is over the limit. Since I over rode the amount which goes to Schedule A I have the proper deduction but how many Turbotax customers are even aware of this?  Turbotax should fix this to make the correct calculation and not rely on the client to override the wrong calculation.

[JoannaB2]

Yes, you may claim mortgage interest deduction regardless of the number of ender/s as long as the loan does not exceed $750,000 for married filing joint ($350,000 for single filers). The home mortgage loan must be secured by the property of yours to qualify for the deduction. The following are steps to enter deductible home mortgage interest:

1. Login to Turbo Tax.
2. Under Federal Taxes, in Deduction and Credit tab, click "I'll what I work on".
3. Under " Your 2020 Deduction and Credit", click update or start next to Mortgage Interest, Refinancing, and Insurance.
4. Under " Home Loan deduction summary" click edit  and enter the lender's information, one at a time.
5. Click continue until you get to the screen " Is this loan secured by a property of yours?" 
6. Click Done.
7. The next screen is a question " Do any of the situation apply to you?". Your answer here will determine if your loan exceeded the allowed home mortgage loan amount.

See link, which federal tax deduction, for additional information.

[terrypam12]

Say I start the year 2020 with a mortgage loan (that was refinanced in a previous year) of $600,000.  Then say in July 2020 I refinance the loan.  The $600,000 is paid off and the refinanced loan is again say $600,000.  When determining if the loan amount (to figure deductible mortgage interest) is over the $750,000 limit do you add the 2 loans together and use the total ($1200,000) or do you add the 2 loans together and divide by 2 ($600,000).  Of course in the first case $1,200,000 is above the $750,000 limit for couples, but in the second case the $600,000 average is well below the limit.  Turbotax adds them together.  Isn't it true that you should use the average instead of the total?

[JoannaB2]

No, you never add two loans or averaged it.  If you refinanced your home loan, the existing loan was paid. In Turbo Tax, you must answer the question as much as you can as this will determine if your loan exceeded the amount allowed. Here are some steps that may help with your situation:

1. Login to your Turbo Tax account.
2. Under Federal Taxes, in Deduction and Credit tab, click "I'll choose what I work on".
3. Under "Your 2020 Deduction and Credit", click update or start next to "Mortgage Interest, Refinancing, and Insurance".
4. Under " Home loan deduction summary" click edit  and enter the lender's information, one at a time.
5. Click continue until you get to the screen " Is this loan secured by a property of yours?" 
6. Click Done.
7. The next screen is a question " Do any of the situation apply to you?". Your answer here will determine if your loan exceeded the allowed loan amount.

[terrypam12]

I've been using Turbotax for years.  I think it's a great program probably 90+% accurate.  I realize Turbotax "Employee Tax Experts" must feel the program can't have made a mistake so the client must be inputting the information incorrectly.  I'm saying I believe this is the exception.  I believe Turbotax is making an incorrect calculation.  You gave me the same answer twice now.  I did exactly what you suggest and the calculation is wrong.  I entered each 1098 as you said.  When I go to Forms and open the Tax & Int Wks, under Mortgage Interest Limited Smart Worksheet then hit Quick Zoom it takes me to Schedule A Deductible Home Mortgage Interest Worksheet..  Under Home Debt Originating after December 15 2017 it lists the 3 loans ( 2 of which were paid off to refi) then has an "average balance"for each.  Then in Part 1 Qualified Loan Limit line 7 titled Average balance of debt acquired after December 15 2017 the TOTAL OF THE 3 AVERAGES is listed.  This Total adds up top $1,911,282 putting me over the $750,000 limit!!!  Never during 2020 was the outstanding loan over $640,000.  If I'm missing something please tell me what it is.  

[DianeW777]

@terrypam12 thank you for your patience.  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 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.

[terrypam12]

Thank you DianeW777.  Entering $1 for the balance of the 2 closed accounts (the program won't allow $0) does end up with the correct deduction for mortgage interest.  I had also resolved it by overriding the limited amount of mortgage interest to report on Sch A in the Tax and Interest Deduction Worksheet.  My purpose in pursuing this for so long is to advise Turbotax that this is a problem.  The client shouldn't have to manipulate the numbers in order for the program to calculate the correct deduction.  I assume now Turbotax is aware of a problem and will fix it with an update.

[jlbrick]

I have reported this issue here: https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-bug-with-refinance-on-a-large...

This is a software bug, not a user error.  There are workarounds, but they are imperfect.  Intuit should prioritize addressing this issue.

[terrypam12]

Yes that's right.  This issue was brought up last year but the problem is still there.  I believe most of the Turbotax "tax experts" find it hard to believe that the program could make a mistake so the user must be entering the wrong data.  Until these "experts" realize that although Turbotax is very accurate it is not perfect.  The note to Turbotax is examine the issue rather than assume the user is wrong.  Only then will TT approach perfection.  With todays very low interest rates refinancing is extremely popular.  This issue affects many people, most of which probably aren't even aware that they are losing significant deductions.  It is a problem that must be addressed and fixed.

[jonathan81]

Agreed. I have the same problem and I bought this software to save time, not to spend the afternoon entering and re-entering the same information, then searching the TurboTax online forum for a resolution. This is ridiculous!

[DianeW777]

This does not appear to be a bug at this time. It's important to answer the questions appropriately for TurboTax to recognize that one loan is a refinance and the other was the original loan.  If you go through the questions carefully, you should obtain the correct results.  (see the image below for the specific page)

• Helpful link: How to handle multiple Forms 1098

 Current solution if you continue to experience this: 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.