I refinanced my main mortgage twice in 2020 and when I enter the 1098 from the second refinance, TurboTax switches from Itemized Deductions to Standard Deduction

[hrmax]

Why would adding a 1098 cause my previous mortgage interest to no longer 'count' and switch to Standard Deduction?

[Cynthiad66]

There is a known problem with Home Mortgage Deduction.  TurboTax is working to fix the problem and the many other issues. There are many changes due to the CARES Act that require software upgrades.  We have not been given an  expected date for the fix yet.  Please check back often to see if you can file your return.

OR

In the meantime, you can try this work around.  You did not provide the details of your Mortgage situation and therefore I am giving you a general work around that might help.  Please try this.

If there is a refi and there was an outstanding mortgage principal listed in both of them on Line 2 on the 1098. When you do put an outstanding balance in both forms, then the program adds them together and if that number is greater than $750k, then it puts you in the category to "limit interest". To get that to go away, you need to go back to the deductions section and click on "edit" mortgage interest statement. Change the line 2 of the mortgage that you no longer owe on (like the one that you refinanced and paid off) to a 0 (zero) because you have refinanced out of that loan and no longer have an "outstanding mortgage principal". Once you change one of them to zero (the one that was paid off by the refinance) then it should no longer pop up with that error at the end when you go to file. 

[hrmax]

I don't see any notifications when I log in to TurboTax to indicate that there are fixes in progress. How do I find out when this mortgage calculation issue will be fixed?

[Cynthiad66]

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.

Or you can just check back often to see if the fix has been implemented.

[axlothar]

So I'm confused now. Another article for this same issue (and updated TT instructions) indicate that we should combine the two 1098s when a mortgage was refinanced into 1 entry in TT. So should we enter the two 1098s as two separate entries with Box 2 as 0 for original mortgage OR should we combine the two into 1 entry with the name of the new mortgage lender?

[JohnB5677]

Let me provide another alternative.

If you've refinanced or had your mortgage lender changed, the outstanding mortgage principal listed in the combined total of them on Line 2 of the 1098 will be too large.

When you put an outstanding balance in both forms, then the program adds them together and if that number is greater than $750k, then it puts you in the category to "limit interest".

To get that to go away, you need to go back to the deductions section and click on "edit" mortgage interest statement. Enter both 1098's.

Change the line 2 of the mortgage that you no longer owe on (like the one that you refinanced and paid off) to a 0 (zero) because you have refinanced out of that loan and no longer have an "outstanding mortgage principal".

[taxsaveme]

Setting box 2 to 0 results in "Outstanding mortgage principal must have a value"

[ToddL99]

Enter "$1" as the Mortgage Loan balance amount. This will not have any effect on your tax calculation and will not generate an error in either TurboTax or with the IRS, From an economic perspective, it is accurate - you owed virtually nothing on this mortgage at the end of 2020. 

There are many places in TurboTax where you must make a non-zero entry, primarily to let the program know that you answered the question and that the answer makes some sense.  

In this case, entering "$1" tells the program that you didn't forget to answer the question and that you had at least some amount of a mortgage loan balance to justify claiming an interest deduction. 

[axlothar]

So I tried both methods that are referenced both inside TT help and in these articles:

Method 1 - I combined the two 1098 forms I have - from my original loan and the refinanced loan - and made just one entry in TT and added the amounts in box 1 and RE taxes paid, and used the outstanding principal and origination dates from the original loan (as indicated within TT help). I got a Federal Tax Due of $2,000 (example) at the top of the TT screen.

Method 2 - I entered both 1098 forms separately but on the original loan, I entered "$1" for the outstanding principal. There's also a subsequent screen that appears that asks you to enter your mortgage balance on 1/1/2021 or on date that you paid off the loan. I entered "$1" in this screen too for the original loan and the actual balance for the refinance loan. The result is that I get a Federal Tax Due of almost double so $4,500 (example).

So both methods result in different tax due amounts so I'm not confident which one is the correct one to use given that the tax due is significantly different.

Why can't TT actually fix the bug? Which is the correct method??

[MaryM428]

In order to keep TurboTax from adding the amount of debt together and limiting the mortgage deduction allowed, you will combine the three 1098's.

1. Add together the amounts in Box 1 and enter the total as mortgage interest
2. Add Together the amounts in Box 5 and enter the total as Mortgage Insurance Premiums
3. Add the property tax paid from each form and enter it in the Property (real estate) taxes box
4. Use the loan's original 1098 form to  add the amounts in Boxes 2, 3, 7, and 11 

 Multiple 1098's for Refinance