Mortgage Interest Deduction (Primary converted to rental, new primary)

[aspins]

Situation:

• Home 1:
  • bought mid-2017 
  • outstanding mortgage balance in 2022 is 550k at beginning of year
  • moved out mid-may 2022
  • converted to rental 
  • first tenant from aug 1, 2022
  • total year 20k interest
• Home 2:
  • bought and moved into mid-may 2022
  • outstanding mortgage balance in 2022 is 1100k at beginning of term
  • paid 15k points
  • total year (from mid-may) 25k interest
  • two 1098's for this home, since initial mortgage holder sold to another bank

Both Home 1 and Home 2 were primary residences for different portions of the year, split by mid-may.

For mortgage interest specifically, I've split the interest on Home-1 by occupancy (7k as primary, 13k as rental) - in turbotax I report the 13k as rental expenses and the 7k as modified interest on the 1098 for that home. I then also include the other two 1098's.

As I understand it, due to the 750k limit post 2017, I think that only 750/~1100 = ~68% of the interest for Home 2 is deductible. Which is 68% of 25k  = 17k. All of the points paid on Home 2 should also be deductible since it is the primary residence.

This should be a total deductible interest+points of 7k+17k+15k = 39k. However TurboTax seems to be showing only ~18k of deductible interest.

What's going on? How can I fix this reporting?

[tagteam]

I'll page @Critter-3 

[Carl]

I'm just guessing here, and I've got two guesses

Quess 1: It "sounds" to me like you entered the 1098 for Home 1 twice. Once in the rental section you entered the total amount in box 1 of the 1098, and again in the Deductions and credits section you entered the total amount in box 1 of the 1098.

If in the rental section you elected to have the program do the split between SCH E for the period of time it was a rental, and SCH A for the period of time it was personal use, then you do *not* enter that 1098 for Home 1 anywhere else in the program. The program (not you) will do that split between SCH E and SCH A.

Guess 2: You indicate you have a total of 3 1098's.  I'm assuming one is for the rental.  The other two are for Home 2, and you have two 1098's for home 2 because the lender sold your mortgage to another.  I would not be surprised if the 2nd 1098 from the buyer of that mortgage also included the interest already indicated from the 1st 1098 from the original lender. You can check that by logging on to the website of the lender and looking at your payment history. Add up all the interest payments and they "should" equal what is shown on that 2nd 1098. If they are less than what's shown on that 2nd 1098, then the buyer of your mortgage may have incorrectly included your interest payments to the original lender.