Edit 'Deductible Home Mortgage Interest Worksheet' for CA 540 return

[RioTubes]

TurboTax does not accurately calculate the mortgage interest adjustment for California returns when one refi'd a mortgage (mortgage acquisition date) originated in 2016 in 2020 with a mortgage above $750,000. This problem is very well documented and TurboTax just hasn't fixed the issue. Once can override the adjustment in the California return, but then the worksheets are still innacurate and don't support the adjustment.

I need to make adjustments in Part I of the 'Deductible Home Mortgage Interest Worksheet'. It has the mortgage that was outstanding at the beginning of 2020 outstanding for 12 months, and then the mortgage that refi'd and repaid the first mortgage's O/S balance in full outstanding for 5 months. Hence TurboTax adds these two balances together. I need to adjust the first mortgages outstanding period from 12 months to 7 months. I have paid for an online subscription. When going to downloads area to find the desktop version it does not allow me to download it because, presumably, I haven't paid for it. How can I make these adjustments in Part I of this workseet in the CA 540 return?

[JoannaB2]

The deductible mortgage interest on a mortgage loan originated in 2016 was $1,000,000 for married filing joint and single ($500,000 for married filing separate).  The mortgage loan must be used to buy or build your home that secures the loan.

You mentioned Turbo Tax worksheets didn't support the adjustments on form 540 Schedule CA. The state of California does not conform to the new federal law that limits taxpayers to the interest on $750,000 ($375,000 for married filing separate) of home mortgage acquisition debt. California allows taxpayers to deduct interest on loans up to $1,000,000 ($500,000 for married filing separate). Note: The loans originated on or after December 15th 2017 don't need adjustment..

Enter the amounts you did not deduct on the federal return that were limited. This would be on the amount of the loan over $750,000 (but not over $1,000,000) plus any amount of home equity loan interest you paid. To enter the California adjistment.

• In Tax Home Screen, click State.
• click continue until you get to "Here's the Income that California Handles Differently".
• Scroll down and choose Home.
• Click Start on Mortgage Interest Adjustment.  See California adjustment screenshot.

•  

[RioTubes]

I was able to do that prior to posting my question. Despite inputting Aug 3, 2020 has the date I refinanced and paid off my 2016 mortgage (which qualified as mortgage acquisition debt) with a $760K mortgage, TurboTax treats both loans as having been outstanding together from August through December 2020. This is apparent when reviewing Part I of California's 'Deductible Home Mortgage Interest Worksheet.' My understanding of the tax law is that if one refi'd a mortgage that, itself, was originated in 2016 (sub $1M) with a mortgage in 2020 at an equal or lower amount on the payoff date ($760K) in 2020, then despite the Federal interest deduction being subject to limitation, one could deduct the full interest paid per the 2, 1098's on one's California return, which is a state that does not observe the mortgage interest limitation, particularly when both loans qualify as mortgage acquisition debt and the subsequent one fully repaid the older one. However, in the Federal section, Turbotax does not correctly calculate line 18 of the Home Mortgage interest Deduction Worksheet, and hence this error is carried over to the CA 540 return. I have not been able to find a way to jump to the CA 540 mortgage interest deduction worksheet to correct the time each mortgage was outstanding for 2020, which seems to be the root of the issue. TurboTax makes it appear that both mortgages were outstanding from August through December.

[Caseyblue]

If I took out a $393,000 mortgage in 2016 and refinanced $384,000 in 2020, what is the amount of Qualified Loan Limit that should be reflected on Deductible Home Mortgage Interest Worksheet Part 2 and Part 3 Line 9 ?

[RioTubes]

You haven't provided enough info for us to be able to provide definitive feedback. Search and find IRS Pub 936 and then review pages 12-14 which includes instructions. Variables that impact your Q include whether you file married or single, whether you took out cash (i.e. the new loan balance was larger than the outstanding balance of the prior loan) and other variables specific to your circumstances. 

What ultimately worked for me in Turbotax was to load the combined interest and RE taxes paid in 2020 on BOTH mortgages into the fields for interest and taxes on the original mortgage, and $0s for these two entries for the new mortgage that paid off the original loan. Turbotax instructs users on the first step described above (in a pop up window)  but is silent on step 2 (entering $0s for int and taxes for the new loan) but the calculations were accurate for me. good luck

[Anonymous]

I encountered the same problem for CA state tax. Even after following the horrible workaround to fix the related issue for federal tax provided by TT , TT continues to adjust down the mortgage points not reported on form 1098 for CA tax. After I manually edited the "Adjustments for Points not reported on form 1098" to 0, TT didn't complain in its "smart" checks, even though the "deductible  home mortgage interest worksheet" is still incorrect.

[Jpc70]

I am having the same issue for 2021.  How do I remove the incorrect worksheet?

[RobertB4444]

 To Delete a form:

1. Select Tax Tools from the menu on the left

2. Then select Tools

3. When the new menu pops up select Delete a Form

4. You will see a list of all the forms in your return

5. Find the form that you want to delete

6. Select the Form

7. Click Delete on the right  

Tax forms are interconnected.  While you are on this screen don’t start deleting forms you don’t recognize.