Entering multiple 1098s due to a refinance is incorrectly triggering the $750,000 principal limit on home loan interest deductions.

[JantovenNF]

@LinaJ2020 

Lina - wouldn't you say, as a Tax expert, that telling people to file one 1098 for multiple lenders and having it all combined together makes you a target for an audit?  It would seem to me that it would be easy for the IRS to see that what you are filing does not match the documents they are receiving. 

Can't TurboTax's software team update the software with a simple patch to take an average instead of adding up numbers?

[Anonymous]

To be clear I refinanced twice in 2020, so that is three 1098's from three different lenders.  And why would I average?   At no point during 2020 did I have two mortgages at the same time on a single property.   My understanding is that there may be an issue with the amounts that were refinanced(slightly higher amounts), but that would be a small difference.  It seems the logic in TurboTax does not take into account these attempts.  Or if it is it would be great if you could expose the calculations on a worksheet we could view, I have no idea what math it is applying.

I also echo the audit possibility if we don't match our 1098's.  Someone on a forum told us to do it may not carry any weight down the line with the IRS.   

[Anonymous]

The chance of an audit for something like using the instructions to combine the numbers is ZERO.  You are talking about how you answer an interview question, not what actually goes on the tax return.  What ends up on the tax return in this instance is the actual correct deduction, there is no auditable item there. None whatsoever.   

[GregM28]

Pardon my ignorance of IRS procedures...I was under the impression that the IRS used computers to match taxpayers returns versus actual 1098s, 1099s and other forms.  If that's the case then combining multiple 1098s into one would seem to be a red flag and potentially lead to some questions from the IRS.  I think what all of us REALLY want is for TurboTax to simply fix the software to mimic what happens on the IRS Pub 936 worksheet to figure deductible mortgage interest expense.  It's so simple even I can do the math!!  

TurboTax's big marketing claim is 100% accurate returns and the biggest refund (least amount owed).  The current iteration of their program certainly does neither.

[Anayaltr]

Seriously...WE PAID MONEY FOR THIS???

TT needs to FIX.IT.

This is a HUGE, HUGE error for people who are eligible to take itemized eductions and if you don't catch it, could cost thousands.  Total BS.

[Anonymous]

Some forms match specifically (such as your W2s) but others aren't filed with your tax return and 1098s are one of those.  As long as your total interest reported doesn't exceed the total interest that the IRS sees on your return, then there isn't an isssue.  Even then, there probably isn't an issue since not all interest is reported on form 1098. 

IF they were forms where the specific data was transmitted from each form to the IRS then it would be a different story, but they're not.  Only one number goes on the tax return - and that's the only number the IRS computers will see no matter how you enter it into the software.  What matters is what is on that final 1040 and its schedules, and the number of 1098s or whose is what isn't on there - just the amount of interest. 

As long as that amount is accurate, you have nothing to be concerned about. There is NOTHING to audit about HOW you enter the data into software programs, it is the data itself and where it ends up on the tax return that matters.  This workaround gets the right number on your tax return, the only thing that matters. 

[dan971]

This is still not fixed. Intuit, could you please get this fixed for 2020 filing season so that a bunch of your customers don't overpay in taxes? TurboTax is really losing credibility here.

[jsmith123]

@Bostondoc84 

Any chance you can explain the calculation you referenced "IRS actually requires you to calculate and report the average mortgage balance held over the year in such cases"? 

I couldn't find anything on the IRS on how to actually calculate when you sold your principal residence, everything seemed to be the average mortgage balance for multiple homes?

In my specific example, we sold a house that was below that limit and then bought a house where the interest would be limited. If I think about how it "should" work it would be to take them both separately - all the interest from the loan that was below the limit should be deductible and then the second home should go through the math and the interest on that home should be limited. That makes logical sense to me, but I couldn't find any guidance on the IRS website or worksheet to explain this. 

[JohnB5677]

The mortgage issue can be solved by realizing that when you get a new mortgage the old one will have been paid off.

• The mortgage that you had at the end of 2019, (1st mortgage) will have a principle balance of zero, because it was paid off to secure the 2nd.
• The second mortgage will also have a principal balance of zero.  Because it was paid off to secure the 3rd mortgage.
• Finally, the mortgage you currently have (3rd mortgage) will reflect the principal as of 01/01/2021.

The IRS instructions for completing Form 1098 state that box 2 should be the amount of principal outstanding on the mortgage as of January 1, 2021.  If the loan was no longer being serviced by that company, there would be no outstanding principal on that mortgage and the amount should be "0".  

Entering '0' into box 2 in your tax return is the correct way to handle a loan that has been closed out.

To enter your 1098 Mortgage Interest statement.

1. Log into TurboTax
2. Select Deductions and Credits [Review/Edit]
3. Mortgage Interest and Refinancing (Form 1098) [Edit/Add]
4. Add a other 1098 or select your bank
5. Continue to follow the interview

Note: if you enter your property taxes from your 1098 you will not have to enter them again in the property tax section.

[JantovenNF]

@JohnB5677 

John - I believe those instructions that you see are actually for the tax year 2021, which is actually reported next year.  Thus, box 2 should be the principal you on 1/1/2020.

The instructions on TurboTax's software say this, too - "for Box 2, input the amount of debt as of 1/1/2020."

[wilfsdad1965]

I have this exact problem, and it creates a problem lower down at state level.

At the federal level, it asks if you've taken cash out of a mortgage and asks if it was paid off on  what date, if you didn't take cash out, it doesn't

Thus it takes the aggregate of all the 'open' loans old and new, (the loans are 'open' because if you don't say it was paid off it never clicks the paid off box on the 540 form at the state level, and also  keeps the number of payments as 12 instead of 'number of months the mortgage was active in  2020') and then filters that down to  the state form which in my case as a resident californian has my total outstanding debt as all 3 mortgages combined for the californian mortgage interest adjustment which is completely wrong.

I had to go into the form and manually fill in  the correct number of months, and that two of them were paid off.

Surely the fix is simple for TT, they should force users to say if a loan was paid off in 2020 regardless of cash out, then it can  correctly ignore them when adding the total  debt, as only one will be 'open'.

[JohnB5677]

Some TurboTax customers are experiencing the following error message when running the Federal Error Check 

Check This Entry: Tax and Interest Deduction Worksheet: Limited Interest and Points must be entered

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

As a work around  you can consolidate the 1098's and get an accurate result.

• Total all of the Box 1 Mortgage Interest received .
• Use the entry in Box 2 Outstanding Mortgage Principal from the most recent mortgage.
• Total all of the Boxes 3,4 & 5
• Enter only the most recent mortgage points for Box 6.  (Any previous points will be deducted when those mortgages were closed.) 

[Critter-3]

All 1098 forms entered on the 2020 return should have the outstanding principal balance due as of 1/1/2020 so only the first mortgage you had will report that amount ... all the following refi's or banks switches will have a zero for the beginning amount since those mortgages did not have an outstanding balance on 1/1/20 since they did not exist on that day.   If you do this the program will complete the forms correctly.    

[wilfsdad1965]

Nope, you are giving incorrect information.

Box 2 has the outstanding amount on  1/1 for existing loans, and the total loan amount on the day of origination for new loans obtained during the year. It is not zero for new loans.

What i  did was ignore box 2 for the new loan (since it wasn't funded on  1/1/) and added my two old loan box 2's  together, this corrected the CA mortgage adjustment error.

[Critter-3]

If I use zeros for all the subsequent loans (or leave the box blank ) then the program works exactly as it should.    Only the loan that was in force on 1/1/2020 needs to have the outstanding balance as of 1/1 listed since it was the only active loan  on that date.   All the following changes that produced a 1098 during the tax year did not have an outstanding balance as of 1/1/2020.