Mortgage Principal Increases Tax Owed

[jwheel29910]

When I input property taxes paid for 2023 the tax owed gets reduced.  On the next line when it asks outstanding principle balance and a value is input, my owed tax goes up.  This is not a refinance, this is not a HELOC - it's on Form 1098 from my lender.  There is only 1 mortgage, that's it.

Why is this occurring?  What impact does the outstanding principal entry have on my tax owed going up?

[zomboo]

If you are talking about entering data from your 1098, the line before Outstanding Principle on Line 2 is Mortgage Interest, not property taxes, on Line 1. If you have enough deductions to itemize on schedule A, I guess it's possible that after entering the Mortgage Interest on line 1,Turbo Tax shows the Tax Owed without limitation. Then if you enter an Outstanding Principle above the mortgage limit, Turbo Tax applies the limit and the Tax Owed goes up.

[PatriciaV]

Was your outstanding mortgage principal balance over $750.000? If so, your interest deduction is limited, which might increase the total tax due for the year.

Also note that the refund monitor in TurboTax is an estimate, influenced by many factors in your return.

[jwheel29910]

I do stand corrected, I meant to say interest not property tax.  My principal was 325K so that should be under the cap.  My interest was 8464.00.  I just do not understand why entering the principal value would would raise the amount of tax owed given it's under the 750K limit.  I am self-employed and use itemize vs standard.  Again I enter the interest value, the tax owed goes down, I enter the outstanding principal and it goes up, by over 2K, not a few dollars.

What other entry/factor causes interaction with the outstanding principal value?

Thank you.

[PatriciaV]

For specific help with this issue, you may consider using TurboTax Live. This online service provides guidance from a tax expert, including screensharing where your experience could be demonstrated.

If this isn't an option, you can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, please follow these instructions: 

In TurboTax Online, open your return, go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools. 
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent. 
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number. 
5. Reply to this thread with your Token number and tag (@) the Expert requesting the token from you. Please include any States that are part of your return.

We will then be able to see the same experience you are having. If we are able to determine the cause, we'll reply here and provide you with a resolution. Timeframe for a response depends on agent availability.

If you are using TurboTax for Desktop, go to Online in the top menu, then choose "Send Tax File to Agent." On a Mac computer, choose File >> Share.

[zomboo]

Is this the only 1098 you have? If you have more than one, the total balance of all could be the issue. That aside, move on and continue to complete your return at least through the Deductions and Credits section. Stop and review Schedule A by clicking the Forms button to see if your property taxes and interest are correctly reported. After your review, click the Step-by-Step button to return to entering your taxes. Let the community know what you found.

[bagofchips]

If the mortgage was Dec 14 '17 or before the $750K limit doesn't apply as you are grandfathered to $1MM or less.  Relevant for me since in my case I have pre-'17 mortgage debt of $830K at start of year.  If I change the principal to $1 through about $550K I get the same tax owed, held constant.  As I increase the principal the amount owed goes up.  This despite not changing the interest paid for the year.  And, curiously, as one other weird edge case, if I change it to $0, the tax owed goes through the roof.  

It makes no sense that changing the principal balance on this mortgage should change the amount of tax owed.  It doesn't seem like a relevant factor.