Entering Average Mortgage Balance for Interest Deduction Directly

[Mike6174]

Why doesn't TT allow you to enter average mortgage balance directly instead of forcing you to you to use the (1/1 + 12/31)/2 method which may not be right for you. It allows you to enter the "ending balance" - any number you want - so why not the actual average balance that you have calculated (beginning balance is on the 1098). It seems you have to fake the ending balance to get their calculation to come out to the correct number. Hate to have to fake numbers to use TT and maybe later have to explain to the IRS. Is there a way to do this correctly?

[KrisD15]

TurboTax states in the Home Mortgage Section that it does not provide the service of computing an average mortgage balance, however before the interview in that section ends, there is an option to adjust the amount of interest you can claim. 

The IRS gets a copy of the interest statement Form 1098 from your Lender. 

TurboTax uses a "worksheet" to calculate the interest. 

If you decide to use the average balance and claim an amount of interest slightly different than what TurboTax computed, there is nothing that TurboTax sends to the IRS other than the interest you claim on Schedule A.

This "Average daily Balance" would need to be calculated by you separately.

Although you may still be disappointed that the program does not make the calculation for you, you may feel relieved that you making an adjustment in TurboTax does not cause any more scrutiny from the IRS than if you did your return by hand as a paper return. 

The same information (return done by hand or done via software program) is sent to the IRS.  

[Mike6174]

It is not the amount of interest I want to change, it is the average balance used to calculate the amount of allowable interest that can be claimed if your average balance is greater than $750K. I hate to change numbers on a 1098 that has been sent to the IRS. I would not know how to change the interest paid number to a higher number so that TT will reduce it to the correct allowable amount. What I can do is change the "Beginning Balance" reported on the 1098 to the correct "Average Balance" I want to use for the allowable interest calculation. That works because TT is using the Beginning Balance as both the Beginning Balance and the Ending Balance in the allowable mortgage interest calculation. This is not a good solution. Is there a better way of doing this without fudging numbers reported on the 1098?

[MindyB]

You can change the amount for outstanding mortgage balance. Since the 1098 instructions ask lenders to report beginning of year mortgage balance, but the tax return limits based on average, it is acceptable to adjust this figure, and doing so will not cause any errors. As @KrisD15 mentions, there will be no additional scrutiny from the IRS for this permissible input.

Make sure you are using an allowed method to compute the average balance.  You can use the average of first and last balance method, interest rate method, or statements provided by your lender.