This is a mortgage situation that is not fully support in TurboTax. The program will process your entries as accurately as possible, but you should calculate both the allocated interest for the Rental Property and the deductible portion for Schedule A on your own. TurboTax should provide a box for you to override the program calculations for deductible interest on Schedule A if you have calculated a different amount. You would enter the Rental Interest Expense manually, avoiding the split between Schedule A and Schedule E.
It's best if you use TurboTax for Desktop (any version) to access the forms in our return. But you can print the worksheets from TurboTax Online after you have paid. Or you can use the IRS forms. Either way, this is complicated and tedious.
Start by entering Form 1098 for the rental property first. Then go to the mortgage interest topic and enter the 1098 for the new loan. Both should be the "most recent" and neither is a refinance. Enter the points only the new loan.
Forms to print:
- Tax & Int Wks "Tax and Interest Deduction Worksheet"
- Ded Home Mort "Deductible Home Mortgage Interest Worksheet"
- Home Int Wkst "Home Mortgage Interest Worksheet" for both 1098's
Follow these instructions to confirm the interest calculation is correct: IRS Pub 936 Table 1 Instructions.
If you calculate a different number, return to the 1098 topic and click Continue/Done at the bottom of the list of 1098s that you have entered. On the page "Your mortgage interest is being limited," you can enter your calculated deduction in the box under "Your adjustments" for both interest and points.
Then go to the Rental Property and revisit the mortgage interest section. Adjust the interest expense as needed.
Your other option is to upgrade to TurboTax Live. This TurboTax Online service provides step-by-step guidance from a tax expert.
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