Mortgage interest deduction limit on a refinance mortgage

[caz1]

If you go to the Forms, then Schedule A, in section 8a for mortgage interest and points, you can right click and over-ride the calculated value to the correct value.

[ethan4]

You can also just lie to TurboTax about the mortgage origination date and put it pre-2018. That date is not reported to the IRS. (I checked 8-)

-- Ethan

[caz1]

Found this the other day.  When you go to enter a 1098, at the bottom there is a hyperlink "Multiple 1098s related to a Refinance done in 2020".  Opening it up gives these instructions:

Hold up! Follow these instructions if you refinanced last year and your new loan amount is $375,000 or more ($250,000 if Married Filing Seperate).

If you refinanced last year, you'll have a 1098 from your previous lender and one from the lender you refinanced with. You'll need both forms to enter the details for this screen.

1. Gather all of your 1098 forms related to your refinance, e.g. the form from your original lender and the form from your new lender.
2. Grab a calculator and add the box 1 amount from each form and 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 here.)
4. Add the property tax paid from each form and enter it here next to Property (real estate) taxes paid.

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

Haven't tried this yet but seems like it should be the solution.  Really whish it wasn't hidden at the bottom of the page like this.

It's uncommon but you could have additional 1098 forms, for example, you refinanced multiple times or your loan was sold by your lender. If you do, follow the same steps but be sure to include info from all of your forms in your calculations for steps 2-4.

Once you're done here, hold on to your forms for when we ask about any points you paid when you refinanced. Points are a fee you pay to reduce your loan's interest rate. If you paid points, you'll see an amount in box 6 of the 1098 for your refinance.

[ReneeM7122]

Unfortunately when you refinance your mortgage and combine a home equity loan, the mortgage interest from the new loan isn’t tax deductible. Only the loan amount when you originally acquired the property remains deductible.

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.

@ethan4

@caz1

[ethan4]

The topic is a no-cash-out refinance. No one mentioned home equity. TurboTax is continuing to ask the wrong questions and screwing people out of the correct deduction. 3 years later it's still broken and people are still getting their taxes miscalculated.

@ReneeM7122 

[JamesG1]

@ethan4

In TurboTax Online Deluxe, I was able to enter a home loan on an IRS form 1098 and the second IRS form 1098 for the refinanced loan.  For the refinanced loan, I used the balance of the loan at the time of loan pay-off. 

I was given the full mortgage interest deduction and the Home Mortgage Interest Limitation Worksheet did not add the two mortgage balances together.

The entries were made at Federal / Deductions & Credits / Mortgage Interest (Form 1098).

Entries for the original loan

Do any of these uncommon situations, I entered None of these apply.

Did you pay points, I entered I’ve already deducted.

Was this loan paid off or refinanced, I entered Yes.

Is this loan a home equity, I entered No, this is the original loan.

Entries for the second loan

Do any of these uncommon situations, I entered None of these apply.

Did you pay points, I entered I didn’t pay points.

Was this loan paid off or refinanced, I entered No.

Is this loan a home equity, I entered Yes, this is a loan I’ve refinanced.

So what type of loan is it? I entered A mortgage loan that I’ve refinanced.

Have you ever pulled cash? I entered No.

[cummingscm]

They didn't change the logic, but they did add a link for how to supposedly enter this in TurboTax.  On the 1098 entry page, there is a link at the bottom "Taxpayers with loans above $750,000 funded After December 15, 2017".  This help link has the following:

You may be able to qualify under the $1,000,000 limit even if your existing loan funded after December 15, 2017 if you meet one of the following scenarios:

Scenario 1: Refinance of Acquisition Debt

You purchased the home before December 15, 2017 and have refinanced the debt. If you loan is above $750,000 please input the Mortgage Origination Date as the date you first purchased the home

The call out says you qualify for the interest deduction (consistent with Pub 936), but it's super hidden, and it still doesn't work.  If you enter the origination date as the original purchase date for the refinance loan in Box 3, it messes up the refinance points amortization calculation and it adds the average balances (12 months) instead of prorating them (7+5, for example).  So it confirms the deduction, but still doesn't fix it the calculation in TurboTax.

[cummingscm]

Another hidden gem, the help link on the points page "Refinance-Loan Points (Multiple 1098s)" says to enter the refinance points as a separate 1098 with the correct loan origination date to calculate the amortization of points.  So between splitting the interest from the points and using the original purchase date for the refinanced interest, you basically trick the program into the right answer.  Doesn't make me feel good, but it's at least the right deduction.

[ReneeM7122]

Correct.  The following are instructions for multiple 1098s when you pay points:

Points on Loans Paid Off in 2020: Enter the points on your 1098 you have started and mark you paid off the loan when promoted.

Points on Loans on New Loans: You will want to enter a separate 1098 to cover these points paid. When prompted, enter 0.00 for Boxes 1, 2, 5, and the Property (real estate) taxes box, and checkbox 7, as you’ve already entered the details on your first 1098. For Box 3, add the date in 2020 when the loan originated.

@cummingscm

[Irene0010]

I tried that, it didnt work for me.

[JamesG1]

@Irene0010

Are you able to enter a home loan on an IRS form 1098 and a second IRS form 1098 for a refinanced loan?  Please clarify.

Perhaps this will be helpful.

In TurboTax Online Deluxe, I was able to enter a home loan on an IRS form 1098 and the second IRS form 1098 for the refinanced loan.  For the refinanced loan, I used the balance of the loan at the time of loan pay-off. 

I was given the full mortgage interest deduction and the Home Mortgage Interest Limitation Worksheet did not add the two mortgage balances together.

The entries were made at Federal / Deductions & Credits / Mortgage Interest (Form 1098).

Entries for the original loan

Do any of these uncommon situations, I entered None of these apply.

Did you pay points, I entered I’ve already deducted.

Was this loan paid off or refinanced, I entered Yes.

Is this loan a home equity, I entered No, this is the original loan.

Entries for the second loan

Do any of these uncommon situations, I entered None of these apply.

Did you pay points, I entered I didn’t pay points.

Was this loan paid off or refinanced, I entered No.

Is this loan a home equity, I entered Yes, this is a loan I’ve refinanced.

So what type of loan is it? I entered A mortgage loan that I’ve refinanced.

Have you ever pulled cash? I entered No.

[Edited 03/16/2021 9:52 AM PST]

[Clear_as_mud]

There are two issues with the software when it comes to reporting 1098 refinancing. 

Presuming that your original loan pre-date 2017 and you refinanced your mortgage last year - without pull out additional money.

1. The first problem is that the software may add up the mortgage principle from both 1098. For example, let say your original principal is 910k and your new one is 900k. The system will take it as 1,800k which is well over the 1 mill you are grandfather in. It looks like they recently fix this but you will have to double-check.

2. The Second issue is that the software does not account for your original loan that predates the 2017 - 750k limitation so you only get the deduction up to 750 and not 900. Your original loan means that you are grandfather in for up to 1 million deductions vs 750k --- this is pro-rated though.

Turbotax WORKAROUND:  https://ttlc.intuit.com/community/loans/help/what-do-i-do-if-i-have-multiple-1098s-from-refinancing-...

[ethan4]

There is a 3rd variant, like your second case but where the refinancing was in 2018 or 2019. Some have reported that it asks the right questions for 2020 refis but not 2018/2019.