Ive run into the exact same problem, refied twice and have interest from three mortgage companies. as you described Turbo tax is treating this like three diff propertys exceeding the $750K or $1M limits and as such my $27,000 in interest is being reduced to $8500 on schedule A. Have you figured out what needs to be done to fix this? thanks, Doug
I have no idea how to fix this. Do you know how to report this problem to Intuit?
Thanks,
-Gary
Some TurboTax customers are experiencing an issue with their Home Mortgage Average Balance. This can cause the Home Mortgage Interest to be incorrectly limited.
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This is the same problem that occurred on 2019 taxes and to my knowledge the problem was never fixed. When should be expect a fix so we can file our 2020 taxes.
Try this. If there is a refi and there was an outstanding mortgage principal listed in both of them on Line 2 on the 1098. When you do put an outstanding balance in both forms, then the program adds them together and if that number is greater than $750k, then it puts you in the category to "limit interest". To get that to go away, you need to go back to the deductions section and click on "edit" mortgage interest statement. Change the line 2 of the mortgage that you no longer owe on (like the one that you refinanced and paid off) to a 0 (zero) because you have refinanced out of that loan and no longer have an "outstanding mortgage principal". Once you change one of them to zero (the one that was paid off by the refinance) then it should no longer pop up with that error at the end when you go to file.
It will not allow me to enter a zero into these fields.
The error has nothing to do with "average interest". TurboTax is ignoring the start dates for re-fi mortgages, such that it causes them to be treated as concurrent. I proved this by monitoring how the interest deduction changed my refund. Adding my latest mortgage actually REDUCED my deduction! That proves that the program is treating it as an addition to the mortgage that preceded it, rather than independent.
I saw the same result by changing the starting value of my current re-fi mortgage to zero, since it wasn't even in effect on 1/1/20, and the program asks for confirmation of the 1/1/21 outstanding balance.
I hesitate to make another suggestion, although it has worked for me. If your entry will not accept a $0 to allow the mortgage interest deduction, you should try putting $1 in the loan balance that has been paid off with the refinanced loan.
Key Point:
Be sure you meet the necessary criteria for the full deduction. A mortgage debt that is below $750,000, (or $1M for grandfathered debt incurred on or before December 15, 2017) this means all of the mortgage interest would be allowed to be used on your itemized deductions as long as there was no cash taken out that was not used on the home (all borrowed funds were used to buy, build or improve the home).
TT needs to fix the software not suggest a workaround. This is ridiculous.
This makes no sense whatsoever to me, but rather than a bug fix I found this when I clicked on "Multiple 1098 related to a Refinance done in 2020."
And this for mortgages exceeding $750,000 ($375,000 filing separately).
So basically we have to do the job of the software we paid out hard earned money for? Lovely! Wonder if the IRS will see the discrepancy between the forms the mortgage company sent and what we are claiming and trigger an audit?
Tells you to take the outstanding principal from the original loan? Why not the final refinance loan? This whole thing is just hokey.
I have four mortgages listed. My refi and the three times they sort my mortgage in one year. In TurboTax I had to put $1 in three of them to get the error messages to go away. Since I doubt that the IRS would be too happy with this, I can't file my taxes until Intuit gets their act together and fixes this bug.
Similar situation here. I upgraded to Premier, so got to talk with someone on the phone. He claims he'll escalate for a bug fix, but who knows if or when that will happen. He forwarded my call to one of their so-called tax experts. What a joke that was! As soon as she reviewed my issue she just forwarded me back into the system!
Hey Intuit, are you reading this?
This should be an easy fix.
(1) The step-by-step guide never asks for the payoff date (if any) on a mortgage, even though that's part of the underlying worksheet.
(2) Then, if the origination date is earlier than 2020 it just defaults to 12 months, even if I enter the "Date loan was paid off" in the "Smart Worksheet". Ain't that a misnomer!
(3) For a mortgage that did originate in 2020, it calculates the proper term (e.g. 7 months).
(4) Because the program ignores pay-off dates, however, it just adds up the principal from all of them. That can erroneously cause the mortgages to exceed the $750,000 limit on interest deductions. This became evident when I looked at my CA Deductible Home Mortgage Interest Worksheet. The "average balance of all home mortgage debt" is the sum total of all the mortgages I entered, even though they didn't exist concurrently!
(5) I found that right-clicking on that average balance box allows me to select "override" to enter the correct mortgage balance, but haven't seen how to fix that on federal yet.
Solution:
Open Forms & go directly to the Home Mortgage Interest Worksheet (Home Int Wkst in the quick list on the left).
It is actually a 2 page form that has a place to enter for "D Date loan was paid off, if paid off in 2020" and "E Outstanding mortgage principal as of 12/31/2020 (or pay off date, if applicable)".
Check box #9 on the worksheet: "Check this box if you refinanced..., paid off..., or sold..."
When you have multiple 1098s for the same property, enter in sequence from oldest to newest. Enter the SAME DATE of the subsequent origination (newer or current loan) that you enter in "D Date loan was paid off," and "$0" in "E Outstanding mortgage principal" (the loan was paid off by a newer loan).
Once you have completed the oldest loan in 2020, use "Quick Zoom" at the bottom of the worksheet to open a second blank worksheet to enter the information for the next or current loan.
This is what I did and then I checked my Schedule A to make sure it worked as expected. The mortgage interest was combined perfectly for both loans at almost $19K without limiting to a little over $14K like it was before!!
I learned that using the default deduction wizard skips important information that you can enter yourself if you go directly to the forms and answer all pertinent questions for each loan appropriately. Entering this info in the worksheets enables TT to differentiate between concurrent loans and a single loan for your primary residence that changed hands throughout the year resulting in multiple 1098s.
Hope this helps.
🙄-- CA really skunks us on this! My little $300K mortgage (refinanced twice last year, transferred to 4 other servicers so I have SIX 1098s!) appears to be well over the million dollar limit because of the way TT handles this.
I was ready to purchase Audit Defense for $45 to just get this over with and let their tax experts handle any fall-out for me ... but now I want to get my full deduction credit from CA, so will try manipulating the forms themselves instead of using TT's interface. Grrrr!
After performing further research, it appears that TurboTax has implemented a literal translation of the procedure in IRS Publication 936. https://www.irs.gov/pub/irs-dft/p936--dft.pdf
That Publication describes the 3 categories of mortgages (pre 10/13/87, 10/13/87-12/16/17, and post 12/16/17). But it fails to distinguish between mortgages carried concurrently, and two different mortgages, where the 2nd refinances the 1st. I understand the reasoning behind using an averaging method to calculate the deductibility of two concurrent mortgages, but I don't think this procedure is meant to apply to the latter situation. I'll need to consult an accountant or the IRS on that one.
Thanks, Mike! I read that IRS language numerous times yesterday ... yikes! When I went through the screen prompts in TT for the umpteenth time, I simply said "no, I didn't take cash out" for the three extra "servicer" 1098s, and that fixed my deductibility issue for the federal return.
I just tried your override idea on the state form and it gave me full credit for my mortgage interest and upped my refund by another $150 or so. But I'm leery about how the state's tax board will handle it. So, I'm going to sleep on it all tonight and decide tomorrow whether to just throw caution to the wind, file both returns and see what happens. 🤔
Ive run into the exact same problem, my mortagage company transferred the load to someone else during the beginning of 2020 and then i refinanced later in the year. So I have 3 1098's for this year. What is the recommend solution from turbotax for this? Can anyone from turbotax or intuit respond? Or anyone from the community can respond and suggest the right solution to this. Appreciate your help.
Did you use this method to fix the issue? Did it work.