Mortgage Interest Deduction not showing up for refinanced loan

[scotttiger]

Hi,

I had a mortgage of about $630K, and last year I was able to deduct $19,949 for interest.

This year, I refinanced and paid off this loan in August 2021. The new loan is for $753,250. The 1098 for this loan shows $5885 in interest. I also paid points of $1115. The 1098 for the other loan has $14,340 in interest.

TurboTax only shows the $14,340 in the Total Deductions and Credits section after typing in all my information.

As I understand it, interest on the first $750K of a loan is deductible. Why doesn't the new loan's interest and points show in the total? I would have expected around $21,340 for my interest deduction. Is this a bug with TurboTax?

I live in California.

Thanks,

Scott

[scotttiger]

I read up more on deductions for cash out loans. I did not apply the cash out money (~$125K) to a capital improvement on my house, but it seems the portion of interest on the amount I refinanced on the old loan (~$625K) should be deductible.

If true, my mortgage interest deduction should be significantly more than the interest for the prior loan.

Why am I not able to get anything more than the first loan's interest as a mortgage deduction in TurboTax?

[DMarkM1 · Accepted solution]

You are correct you should get most of the interest from both loans as an itemized deduction. 

1. Delete all the Forms 1098 from the "Deductions & Credits," "Mortgage Interest" topic and continue through the end of the topic interview to be sure you will have a clean slate.
2. Enter the the 1098 for the old loan.  In the follow questions be sure to select that this is NOT the latest 1098 for this loan. 
3. After answering all the follow on questions you will get back to summary page showing the 1098 you entered
4. Do not click "Done" but "Add a 1098"
5. Enter the 1098 for the new loan; this time you will select that it is the latest 1098 for the loan
6. You will answer that this is a refinance and you used some of the money for purposes other than to buy, build, improve the home
7. Use the "Guide" to help figure the deductible amount of interest based on the part of the loan used on the home
8. After answering the follow on questions this time, select "Done"
9. You will have an opportunity to review the loans and put in the pay off information on the old loan and the and the end of year balance on the new loan.

[scotttiger]

THANK YOU SO MUCH for the quick and comprehensive reply.

It took me a couple times to figure out that for the second loan, I needed to put in the payoff amount of the prior loan into the box for "Since you first took out this loan, how much has been spent to buy, improve, or build the home it is secured by?"

If I left it blank (ignoring the "buy" part of the sentence), I received no benefit. Now, by putting in the payoff amount of the old loan, I have a deduction of $20,185. So, your advice is so very welcome. (!)

I am wondering though if I can include the payoff of debts allocated to home improvements prior to 2021: 2 bathroom remodels (February 2018), a kitchen remodel (March 2019), and new double-paned windows and artificial turf (March 2020).

It would be great to include those amounts and roll them into the overall "capital improvements" bucket covered by this loan even though they were not immediately financed with it.

Would adding those costs to the payoff amount of the prior loan be kosher since I am now paying mortgage interest by paying off those home improvements with a large portion of the money I took out?

If not, fine, but it would be nice if this is justified.

Again, thank you for guiding me through this maze of rules and check-boxes. Frankly, TurboTax is usually good at guiding, but for this topic and scenario, its phrasing is a bit weak and clearly leads one astray.

Best,

Scott