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jw1284
Returning Member

Interest Deduction limiting both loans in 2020. Issue with average loan balance and with amount for personal use in Interest Worksheet.

I had two different loans during 2020 and believe Turbo Tax is incorrectly assuming both loans exceeded the $750,000 limitation when one of them was under the threshold.  This is reducing the deductibility of the smaller loan.

 

During the first half of the year, I was living in a residence (property A) with a mortgage of $580,000.  I then moved out and converted the residence to a rental on July 1, 2020.  The 1098-INT shows a total of $21,000 interest paid for this loan for the entire year which I believe 50%, or $10,500, can be deducted as Schedule A Interest and the remaining $10,500 is presented through Schedule E.  Note that this loan does not exceed the $750,000 TCJA limitation.

 

On July 1, 2020, I purchased another home as my primary residence (property B) after renting out the first home.  The second home was purchased with a mortgage of $1,600,000 which I paid $27,000 of interest as shown on the 1098-INT during 2020.  Based on the $750,000 limitation, I believe only 46.875% [$750,000 / $1,600,000] of the interest can be deducted as Schedule A Interest, or $12,656.

 

What I’m noticing in Turbo Tax is that the Home Mortgage Interest Worksheet assumes all interest paid for both loans are subject to the $750,000 limitation because property B’s loans is $1,600,000.  The software is taking the sum of all interest and multiplying by the 46.875% factor although I believe the portion of my first loan which was incurred during my residency should be completely deductible.

 

I have two questions:

  • How can I tell Turbo Tax to only reduce interest on the larger loan on property B so I can fully deduct the $10,500 for property A?
  • Turbo Tax correctly allocated the amount for personal use on Schedule E although I do not see the amount populated in the interest worksheet for Schedule A purposes and rather, the full amount of $21,000.  This effectively duplicates the interest.  How can I get Turbo Tax to only apply $10,500 for the worksheet rather than the full amount of $21,000 from property A’s loan?

Thanks!

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