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?
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.
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?
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.
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.
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:
See link, which federal tax deduction, for additional information.
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?
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:
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.
@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.
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.
I have reported this issue here: https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-bug-with-refinance-on-a-large-mortgage/01/1821481/highlight/true#M170405
This is a software bug, not a user error. There are workarounds, but they are imperfect. Intuit should prioritize addressing this issue.
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.
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!
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)
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.
@DianeW777 @terrypam12 @jlbrick
Hi Diane,
I don't think its helpful to just state categorically in multiple threads that "This does not appear to be a bug at this time." Several (close to a dozen) clearly sophisticated TT users have reported the identical behavior and I cannot imagine how many more have no idea how the mortgage interest deduction limits are calculated.
Your solution also does not solve a superimposed issue that is not handled by TT. Because home acquisition debt between $750k and $1M which is refinanced after the 2017 TCJA is subject to the $1M (rather than $750k) deductibility limit, there needs to be a way to tell TT that a given refinanced mortgage is 100% deductible even if its origination date is after 2017 and exceeds $750k. The most straightforward way would simply to link the original and refinanced mortgages - this would allow much more straightforward calculation of average mortgage debt balance (since these are non-overlapping debts in a refinance situation) AND would track the nature of the underlying debt in the refinance.
My point here is that multiple people are trying to tell Intuit/TT that there is a serious issue here and we would appreciate a more substantive solution than to fudge the numbers just because "in all likelihood you will not be asked to provide it later" as you write.
It strikes me as odd to both say "this does not appear to be a bug" and also "put $0 rather than the real balance when you report your second 1098"
There is a bug! Turbotax should compute the correct values when you enter your real 1098 values, not require you to intentionally report incorrect values!
We are aware of this experience and thank you for reporting it here. 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 above for the specific page). If you do not get this page you may have to delete your 1098s completely then re-enter.
It's just baffling to me that TT "employee tax experts" are so defensive about this issue. Diane says thanks for reporting the issue then explains if you just answer the questions correctly TT will come up with the correct answer. That simply is not true. I called the TT help line and the first person I spoke with upgraded the call to a CPA in Washington. He was able to share my screen with me and agreed that THERE IS A BUG. After we spent about 45 minutes sharing the same screen, and after he recreated the problem on his computer he said he was going to report the issue to management. It is becoming more and more clear that TT just isn't willing to look at the problem objectively. I'm not at this time concerned with my personal return as I've manipulated the numbers to arrive at the correct deduction. I am however concerned that there are probably many users of TT who aren't aware that their deductions regarding refinanced mortgages are not correct.
Yes, you may claim mortgage interest deduction regardless of the number of lenders 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 to qualify for the deduction. The following are steps to enter deductible home mortgage interest:
See,can i deduct my mortgage interest?, for addtional information.
Hi, thanks for this information.
Are you able to specify which specific version/implementation of TT this applies to? I have, despite spending hours in the mortgage deduction section, never seen some of the prompts you are referencing.
Hello,
The steps to enter 1098 mortgage interest statements applies to both Turbo Tax Online and Turbo Tax Desktop version.
This statement is not correct: “you may claim mortgage interest deduction regardless of the number of lenders as long as the loan does not exceed $750,000 for married filing joint ($350,000 for single filers)”.
Single filers have the same $750,000 limitation and married filing joint filers. Married filing separate filers have a lower limitation of $375,000. I’m concerned that a TT employee tax expert doesn’t know this basic information.
I didn't fill anything out incorrectly. I told TurboTax that the 2nd 1098 was for a refinance, and it *still* added the loan amounts together to see by how much $750,000 was exceeded. That's the bug.
Why do you insist this isn’t a bug? The fact that sooo many people have had this same issue either proves this is in fact a bug or TurboTax software is not as easy and straightforward as advertised. If you need to be a CPA or tax expert to know that you have to cheat the software (by putting $1 for the loan amount), then there is obviously a problem! I double checked the screen shot you sent and I did, in fact, enter the information correctly. One thing I did notice though is that it appears you are using the PC version. I am using the Mac version. Did you check that? Also the first question: “Is this the original loan you took out to purchase this property?” My answers are in reverse order as yours. Maybe the Mac version has the bug. See attached screen shot. If you are unsure, then please stop insisting it isn’t a bug and pass this on to someone who can fix it in all versions of the software.