Mortgage points being incorrectly pro-rated because loan is above $750k

[ec1244]

Hello - it seems that TurboTax is incorrectly prorating points paid on a mortgage taken in 2021 because the loan amount was above $750k. I am itemizing deductions, and not amortizing points over the life of loan. IRS Publication 936 does not suggest that points need to be pro-rated like mortgage interest.

In TurboTax, Schedule A deduction for "Home Mortgage Interest and points reported to you on Form 1098" (Line 8a) has a value that exactly represents:

(Mortgage Interest + Points Paid)*(Deduction Rate)

When it should be:

(Mortgage Interest * Deduction Rate) + Points Paid

The entries leading up to this seem to be correct. On the Deductible Home Interest Worksheet:

- Line 11 (and everything leading up to it) is correctly calculated the "deduction rate" for home mortgage interest.

- Line 20 correctly applies this rate to home interest

And in the Home Interest Mortgage Worksheet, Line 7a correctly lists the points paid in 2021.

Any suggestions on how to fix this? There does not seem to be an interim calculation that I can edit anywhere.

I'm using TurboTax Desktop on Mac. Thank you!

(Edited for formatting and clarity)

[AmyC · Accepted solution]

Correct. Points are not prorated based on the amount of the loan but rather by the length of the mortgage.  Since you have FORMS mode, you can override the correct amounts then go back through the step-by-step to see which screens change. Once things are corrected in the step-by-step, you can cancel the override. 

To override on a Mac, select the field, select EDIT in the menu bar, select override. Same steps to cancel the override.

You can use the Help Center button on the top right of the program for help with a form while in FORMS mode.

About Publication 936, Home Mortgage Interest Deduction page 6 shows the chart for points allowed to be deducted fully. This is an exception as most points must be ratably deducted as shown on page 7.

[ec1244]

Thank you. I didn't realize that I could "override" entries in Forms View. I'll do that.

But this seems like a big bug for anyone deducting mortgage points with a loan over $750k! It's very easy to miss unless you comb through Schedule A. I'm not sure if it applies to those amortizing over the life of the loan (it might...) but it definitely applies to those deducting all their points.

Edit to add: TurboTax freaks out when I override this. "Int/Pts on Form 1098 should not be overridden and changed for Electronic Filing. Using an override can prevent the cross-checking that's important to an accurate tax return. To cancel the override, click on the overridden field and choose 'Override' from the Edit menu." Super frustrating because their math between the worksheets and Schedule A is simply wrong.

[AmyC]

Override is great for finding issues! An overridden value does prevent cross checking which is why it does void the accuracy guarantee. Which is why if you go through step by step and figure out what the program wants where, you can go back and cancel the override. You can file with an override, just be aware that you are voiding the accuracy guarantee.

[ec1244]

I unfortunately don't think I have a choice. When I get though the "Mortgage Interest, Refinancing, and Insurance" section in Deductions, it displays the correct total deduction as the last step before I click done. That is, it shows the prorated interest paid + total points. This should be what shows up in Schedule A Line 8a, but it's not. All the worksheets in Forms are also correct; points are not prorated anywhere. It's only Schedule A Line 8a that is wrong. I am pretty convinced this is a TurboTax bug.

I worry that a lot of people (with mortgages over $750k, paid points, and are itemizing deductions), are having the same issue without knowing it. Our mortgage was not much over $750k so it doesn't amount to a huge difference, but it could be much bigger for others. I would love to report this to TurboTax, but I have no idea how. 

In any case, thanks for your help @AmyC.

[AmyC]

You can report suspected bugs here in the forum but we also need a copy of the return with the issue. The Investigations department begins work before tax season, with some of us here early, looking for problems. The program is huge. Currently, investigations is finishing up with what they have already. 

I am glad you are sharp and were able to get through!