How do I enter 1098s for the original mortgage and the refinanced loan that paid off the original mortgage? TurboTax seems to be calculating the balance twice.

[JasonChicago]

I received an email today that the "glitch" has been fixed. I tried entering my 1098s answering the questions as written as well as using the illogical responses provided above and sill run into the same problem - my deduction is limited even though I never had a mortgage balance that exceeds $750k. When will TurboTax fix this problem?

[DianeW777]

If you choose to move forward with your return and if you have a mortgage debt that is below $750,000, (or $1M for grandfathered debt incurred on or before December 15, 2017) this means all of the mortgage interest would be allowed to be used on your itemized deductions as long as there was no cash taken out that was not used on the home (all borrowed funds were used to buy, build or improve the home). 

If this is your situation then enter the mortgage debt for Form 1098 with the current lender, and then enter $1 or $0 for the second or former lender in that Form 1098. This will provide the correct amount of allowed mortgage interest deduction.

You may want to delete them first to begin again and also clearing your cache and cookies is a good ides (regularly).

Here's how to enter your mortgage interest statement in TurboTax:

1. With your return open, search for 1098 and select the Jump to link in the search results.
2. Follow the instructions to enter your 1098 info.

[JasonChicago]

Thanks Diane - appreciate the help but find that answer a bit unsatisfactory. I pay for the value that TurboTax is supposed to deliver by easing the tax filing process. If I have to use workarounds to get TurboTax to work correctly, why should I have confidence that other areas are also correct when I don't have enough knowledge of the tax code to "find" TurboTax's problems?

[mpinne]

What if we rolled the refinance costs into the new principal balance? It seems that per other posts that the interest is only deductible up to the principal balance of the original acquisition debt at the time of refinance. For example, if the original balance was $710,000 at refinance time, and $5,000 of costs were rolled into the new principal of $715, 000, how do we adjust for the interest on the $5,000 incremental (disallowed) principal balance in TurboTax?

[Cynthiad66]

Yes.   you should adjust your Mortgage Interest deduction to exclude the closing cost, that are rolled into the refinancing.

As per IRS publication 530, homebuyers may deduct certain closing costs when they file federal tax returns. These include the points, or loan origination fees, you paid, as well as property taxes and mortgage interest. The IRS considers points as prepaid interest, thereby permitting deductibility.  IRS Publication 530 For Home Owners

[mpinne]

Thanks, so does that mean I should calculate the % of the mortgage that relates to the increase and reduce the mortgage interest but that amount? If so, do I need to check the "not as reported on 1098" box?

Additionally, once we refinanced, our mortgage was sold, so we have 3 1098's. I see some conflicting guidance in the FAQ's - some say combine all as one, using the original balance, and some say use whichever lender holds the mortgage as of the end of the year - do you all suggest to load all 3 separately? Or as one combined using the ending lender's name and principal balance (while checking box 11 for the purchase date)?

[WendyN2]

On your "Federal Taxes" - "Deductions and Credits" page, once you've navigated yourself to the page titled "Let's get the details from your "XYZ" 1098" - you will see at the very bottom the hi-lighted phrase "Multiple 1098s due to a refinance done in 2020". Click on this and follow the instructions as stated in order for the system to properly calculate your multiple 1098s.

[mpinne]

I've read those instructions, but they don't a) address how to make the adjustment for the amount above the original principal balance and b) if 2,3,7, and 11 use the original mortgage, than it won't be identified as having been refinanced - is that correct?   One of the other posts said to use the ending/latest mortgage lender.

[JasonChicago]

TurboTax was (is?) calculating refinances incorrectly. This thread is related to an issue where when you have more than one 1098, TurboTax incorrectly adds all mortgage balances together and incorrectly limits your deduction. If you don’t know what you can deduct/not deduct, you shouldn’t use TurboTax. If you do, adjust your entries until you get the correct deduction. 

[ReneeM7122]

In answer to your questions:

a)  How do you make the adjustment for the amount above the original principal balance?

You need to add together the amounts in box 1 from each 1098 form as well as box 5 and the property taxes that you paid.

b) if 2,3,7, and 11 use the original mortgage, than it won't be identified as having been refinanced - is that correct?   

Yes, that is correct.

Step-by-step

If you refinanced last year, you’ll have a Form 1098 from your previous lender and one from the lender you refinanced with. You’ll need both forms. 

Follow these steps to enter your mortgage information:

1. Gather all of your 1098 forms related to your refinance (the form from your original lender and the form from your new lender)
2. Grab a calculator and add together the box 1 amount from each form. Enter the total in TurboTax as Box 1 Mortgage interest.
3. Add the Box 5 amount from each form and enter the total as Box 5 Mortgage insurance premiums. (If you weren’t required to pay mortgage interest, these boxes will be blank on your forms and you won’t enter anything.)
4. Add the property tax paid from each form and enter it in the Property (real estate) taxes box.

Next, finish adding info for boxes 2, 3, 7, and 11 using Form 1098 for the original loan.

@mpinne

[mpinne]

thanks - I know what to deduct, I'm just asking for clarification for how to do it in TurboTax since there have been conflicting responses.

[mpinne]

Thank you Renee - my prior response was to Jason's comment above.

One point of clarification for your response to a)  - so I should add the 3 box 1 amounts, less the adjustment for the interest on the increased principal?  Will it matter that if I use the original lender this year, but use the new latest lender next year? Just trying to understand the rationale of using the original lender if there have been two additional lenders since.

Thanks!!

[suttonm11]

This is all sooo confusing.  As one person wrote, we purchase TT to be led through all this stuff, not have to calculate and enter workarounds.  I have spent over 4 hours on the line with support specialists at tier 1,2 & 3 over the last 2 days and they generally agree that its an issue.

A few years ago there was a simple question asked:  'Did you sell your house or refinance your mortgage during the year?'.  If you answered yes, it led you through the process step by step....where has that gone??!

@experts on these threads - PLEASE report this to TT higher management/support as a glitch or AT LEAST as a customer service-feedback issue.  This is all waaay to complicated to figure out and I consider myself to be quite financially literate and have used the software for over 10 years.  This particular process of entering the information just does not fit the needs of us customers.  Please, please flag it for attention & a fix/improvement.  Thank you

[ReneeM7122]

The reason you want to use the original lender is because mortgage interest is only deductible on the original loan.  

https://www.irs.gov/publications/p936  No matter when the indebtedness was incurred, you can no longer deduct the interest from a loan secured by your home to the extent the loan proceeds weren't used to buy, build, or substantially improve your home.

@mpinne

[ldecorinteriors]

I have spent days on this issue and chats/phone calls with 7 experts.  They need to FIX THEIR SOFTWARE and not try to provide "workarounds" that might fix the issue.  So many different answers from different experts and none of them really seem to work.