Home Mortgage Interest Deduction in Divorce Year

[anotary]

I was divorced in late 2019 (CA resident).  As part of the settlement with my ex, I had to get her equity out of the house, so we did a HELOC and I paid her $258,000.  I then refinanced the house with a new loan of $570,000 in my name only, and paid off the HELOC, etc.  I'm now trying to file my taxes for 2019 as Head of Household, given my son stayed with me in 2019 (he turned 18 that year and lived with me until September).

When I put my loan/mortgage info into TurboTax, I included the nearly $21,000 in interest from the loan my ex I had originated back in 2008.  When TurboTax asks the question "Do any of these situations apply to you?"  after all mortgage info is entered, I said "No."  When I hit "Continue" the software apparently changes my answer to "Yes" automatically, and then gives me the standard deduction for HofH of $18,350, thereby ignoring my $21K in interest and not itemizing my deductions, and bumping up my federal taxes by another $3,500+!

Any ideas?  Are the new limits on deducting mortgage interest being applied to a mortgage that I took out with my wife in 2008, now that I'm single/HofH?

[VictoriaD75]

You can only deduct interest paid in 2019. You cannot deduct interest back to 2008. HELOC interest is only deductible for loans that were taken out to buy, build, or substantially improve the home secured by the loan. You would not be able to deduct interest for the HELOC as it was used to buy out the equity from your former spouse. 

Interest is fully deductible on qualified mortgage debt up to $750,000. Based on the information you provided, all of the mortgage interest on the refinanced debt should be deductible.

Mortgage interest is part of itemized deductions. You would only itemize if your total deductions are greater than the standard deduction for your filing status. If you are Head of Household, you are correct that the standard deduction amount is $18,350. However, not all of your mortgage interest may be deductible.  

[anotary]

Yes - I'm only trying to deduct interest paid in 2019, from three different banks.

I recognize that the HELOC interest won't be deductible, since I used it to get my ex her equity out of the house.

One of my loans (the existing loan that my wife and I had) accrued over $20K in interest (loan balance was around $570K), but for reasons I can't understand, when I answer that question "Yes" that TurboTax asks about the loans, it automatically changes the answer to "No", and then ignores that interest deduction and pushes me into the standard deduction category...  It's either a bug in the software or I'm doing something wrong further up the line...

[RobertG]

I would suggest that you schedule a callback with a TurboTax expert to get this resolved.  

The expert will be able to see your TurboTax screens to guide you screen-by-screen and offer advice.

To schedule a call, click on 'Help' in the top of your screen on the right.

Then select 'Contact us'

Then 'Talk to a person'