mortgage deduction - not itemizing when I sold/purchased new home

[aravjani]

I bought a new home in 2021.  My previous mortgage (held Jan-March) had mortgage interest and a loan <750k.  I sold, then have a new home with mortgage >750k.  Turbotax is pointing me to the standard deduction, even though the combined interest (with a %of the new purchase) + other deductions would make it more advantageous to itemize.  

How can I correct?

[Vanessa A]

It may actually not be more advantageous to take the standard deduction.  If you are single your standard deduction is $12,550, if married filing joint it is $25,550.  When you are comparing these numbers to the itemized deduction do not just look at what you entered or what is on the summary screen. 

For example, if your summary screen is showing $15,000 in State and Local taxes, only $10,000 counts towards your itemized deductions because of the SALT limitations.

If your AGI is $100,000 and your medical expenses you entered totaled $12,000, only $4,500 would count towards your itemized deductions because you can only claim medical expenses in excess of 7.5% of your AGI.

Also, if you entered employee job expenses for your W-2 income, these are not deductible for your federal return, but they are for some states. 

So when TurboTax is telling you to take the Standard Deduction, it is accounting for the amount you can actually claim, not the amount that you have entered. 

If you want to see your actual Itemized Deductions that you could claim, you can walk through to the end of the deductions and credits section then you will see a comparison.  It will allow you to select Itemized Deductions instead of standard deduction.  Select Itemized Deductions then on the left side of your screen click Tax Tools>>Tools>> View Tax Summary.  You can then see the total of your Itemized Deductions.  

Also, if there is no difference in your refund, TurboTax is defaulting to the Standard Deduction unless you change it. 

[aravjani]

Im fairly confident about this.  I hit the 10k cap on SALT.  Plus 16k in the new mortgage (a percentage of which should not be deductible b/c over 750k) and 5K from the previous home (all under 750K, so deductible).  So I should have around 19k in mortgage interest, plus 10k SALT, plus some miscellaneous charitable contributions.  I should be near 30k deductions, versus standard at 25. 

I think turbotax is adding the two mortgages together, even though I never held them at the same time, and determining that the percent I can deduct is much lower.

How can I fix this?

[DaveF1006]

Since you no longer owe a mortgage balance for the old home, put in "0" for outstanding mortgage principal for the old home. If that doesn't work, try placing a 1 in that box so that there will not be a combined mortgage principle between the two loans. 

[blzrmz]

I am having the same problem as other people.  One mortgage was paid off in May and the other started in July.  Turbo tax is adding to two separate mortgage average balances together and that is making a huge disallowance of the mortgage interest.  Mortgage #1 has an average of $1,075,000 and interest of 18,000 paid off May 2021. Mortgage #2 started July 2021 and has an average of $1,195,000 and interest of $12,500 .  Turbo tax is saying the average is $2,270,000 and the interest allowed is  $10,077  750,000/2,270,000 = 33.04% X $30,500.  If I put a zero in the payoff of mortgage #1 as suggested above it makes the first mortgage at half $537,500 and then adds that to the second average mortgage of $1,195,000 again giving a total average that is bigger than either mortgage ever was from the beginning.  

[JillS56]

When entering the 1098s for the mortgage paid and the new mortgage you need to eliminate the Outstanding Mortgage Principal on the loan that was paid off.   To enter the two 1098s follow these steps:

1. Enter the first 1098 for the loan that was paid off.   In Box 1 enter the amount of interest;
2. For Outstanding Mortgage Principal leave it blank or enter "0" and 
3. Enter the Origination Date.  

For the second 1098, 

1. Enter the Box 1 amount;
2. For Outstanding Mortgage Principal enter the amount as shown on the second 1098 (new mortgage)
3. Enter the Origination Date

This will eliminate the average of the Outstanding Mortgage Principal.  

If this is a re-fi, you could combine the amount in Box 1 of both 1098s, then for the Outstanding Mortgage Principal use the amount from the second (re-fi) 1098 only.  

[blzrmz]

This was not an accurate way of fixing the problem.  I had to use a different method of completing the tax return (another software).  

I couldn't use TurboTax for the return where there was a sale of a house and a purchase of a new house therefore having two mortgages that were above the $750k.  If someone is trying to complete a return by trusting the input on TurboTax they will lose deductions.