Bug in Software? Full mortgage interest deduction not be calculated when entering multiple mortgage lenders.

[Gigs_MD]

(Married filing jointly)

We had 4 different mortgage lenders this past year, but only one at any given time and always for a primary residence.  We sold a house, bought another house, that loan was sold to another bank, and then we refinanced.  That is why we have 4 different statements.

When I individually list out the mortgage interest paid to each of the different lenders, TurboTax is only computing a deduction of about 30% of the combined mortgage interest across all 4 mortgages.  As an experiment, I created one single entry of the combined mortgage interest.  TurboTax then gives 100% of that mortgage interest as a deduction.

My hypothesis is that TurboTax thinks we had 4 mortgages concurrently and were running into the $750K mortgage amount cap.  If each mortgage amount was $600K, then TurboTax is calculating as if we had $2.4M in mortgaged amount.  In reality, our mortgage amount was always under the $750K cap since only one was active at any given time.

[Cynthiad66 · Accepted solution]

Bingo!!!! That is the issue.  There is a known problem with Home Mortgage Deduction.  TurboTax is working to fix the problem and the many other issues. There are many changes due to the CARES Act that require software upgrades.  We have not been given an  expected date for the fix yet.  Please check back often to see if you can file your return.

This was the work around until the deduction was fixed in the sooftware and you got it.

You should combine all of the 1098s directly related to the refinance and enter it as one 1098.  An example of this is if you refinanced two loans into one loan. Any 1098s not directly related to the refinance should get entered separately.

Currently, the home mortgage interest deduction (HMID) allows itemizing homeowners to deduct mortgage interest paid on up to $750,000 worth of principal, on either their first or second residence. This limitation was introduced by the Tax Cuts and Jobs Act (TCJA) and will revert to $1 million after 2025.

Glad you were able to resolve the issue.  It is imortant to get the numbers correct on the return.

[Neutrinoshead]

I noticed the same thing yesterday and figured there was an error.  I kept wondering why my deductions were much less than last year and nothing had really changed. Honed in and noticed it was only calculating about 40% of my mortgage interest (had similar situation where original loan was sold to another lender, then we refinanced to a 3rd lender).  So question can we submit our taxes with all of the 1098s combined or should we just hold off until the bug is fixed?  Any insight on when that will be???

[ReneeM7122]

The issue has to do with the fact that you had a refinance as well as a loan sold to another lender. 

Currently, TurboTax has instructed us to combine multiple 1098s together.   But if your loan is sold, then you don't have two loans - you have one.  The loan was sold outside of your control and the only thing that changes is the bank to whom you make payments.  So you only use the ORIGINAL 1098 for that entry.

Once you're done with the sold loan portion, go ahead and follow these official steps regarding the refinance:

How do I handle multiple 1098 mortgage forms?

If you have multiple 1098 mortgage forms, you’ll enter them one at a time. After going through the steps with the first one, you can add a lender when you get to the Mortgage deduction summary screen. (In the case of a refinance, it's best to enter the 1098 from your original loan before the 1098 from your refinance.)

But, if they're both from the same lender, and one of them has the “Corrected” checkbox marked at the top, enter the corrected 1098 and discard or shred the other one.

What do I do if I have multiple 1098s from refinancing my home debt?

If your total home debt is under $375,000 ($250,000 for married filing separate) there is nothing new for you to do in 2020. Enter each 1098 as you normally would.

Home Debt Over $375,000

Under tax law, you are limited on the amount of home interest you can deduct. The limit is based on the loan amount and date of the origination of debt. We want to make sure we calculate this correctly for you. 

If you refinanced last year, you’ll have a Form 1098 from your previous lender and one from the lender you refinanced with. You’ll need both forms. 

Follow these steps to enter your mortgage information:

1. Gather all of your 1098 forms related to your refinance (the form from your original lender and the form from your new lender)
2. Grab a calculator and add together the box 1 amount from each form. Enter the total in TurboTax as Box 1 Mortgage interest.
3. Add the Box 5 amount from each form and enter the total as Box 5 Mortgage insurance premiums. (If you weren’t required to pay mortgage interest, these boxes will be blank on your forms and you won’t enter anything.)
4. Add the property tax paid from each form and enter it in the Property (real estate) taxes box.

Next, finish adding info for boxes 2, 3, 7, and 11 using Form 1098 for the original loan.

What if I have more than two 1098s?

You should combine all of the 1098s directly related to the refinance and enter it as one 1098.  An example of this is if you refinanced two loans into one loan. Any 1098s not directly related to the refinance should get entered separately.

What if I paid points?

Points on Loans Paid Off in 2020: Enter the points on your 1098 you have started and mark you paid off the loan when promoted.

Points on Loans on New Loans: You will want to enter a separate 1098 to cover these points paid. When prompted, enter 0.00 for Boxes 1, 2, 5, and the Property (real estate) taxes box, and checkbox 7, as you’ve already entered the details on your first 1098. For Box 3, add the date in 2020 when the loan originated.

@Neutrinoshead

[Frank8008]

I thought that I am the only one having trouble with getting the mortgage interests correctly entered.  TurboxTax should be ashamed of itself to have such a bug that could be fixed easily.  As I looked into the worksheets, I found that Turbotax basically add the two mortgages together to come up with the average running mortgage of 2020 for you even the two mortgages did not exist at the same time.  A simple fix would be to do a weighted average (based on the months of the two mortgages reported).  Hope that Intuit will get this bug fixed soon.  As the time being, if you have the same issue as I have (one loan of about $700k for 7 months that is refinanced down to $500k for the rest of the year, which was calculated as an average of $1.2mil now, totally wrong) , two solutions could get this resolved: 1) put all interests into one 1098; 2) overwrite the Turbotax calculated "deductible amount of interest" in the "Tax & Int Wks" with the correct amount of combined interest on line "Limited Amount to Report on Sch A, line 8a".  

Again, I hope that Intuit's technicians see this discussion and get this bug fix soon.

[SK250]

How to fix it in 2019 return? When I checked my last year return, TT calculated wrongly. how do I amend it?

What are the steps to fix it? This is only in CA return? Federal adjustment is fine.

[JohnB5677]

Your 2019 California information flows from the Federal,  Then the interview will make adjustments.

To amend a return 

Some quick ground rules:

1. Be sure the original return was filed and accepted.
2. Save the original return before you start the amendment
3. Change the name of the amended return.
4. DO NOT go back into the return or change anything before you start the amendment process.
5. Gather everything you need before you start.
6. Complete the entire amendment process before you log out.

 You can correct a return that you've already filed and had accepted.  Select the year that applies and use this guide to proceed.

Select your tax year for amending instructions:

• 2020
• 2019
• 2018
• 2017

For additional information please refer to  How to Amend

@SK250

[sidbee]

I refinanced 3 times in 2020and every time loan got sold to a new servicer . Therefore now i have 7 1098s.

Do i need to add all the 7 together ? What would be the Name of the Lender ,  loan amount in the combined 1098 and finally what about the Origination Date ?

[JohnW152]

Combine all of the 1098s directly related to the refinance and enter it as one 1098. 

Name the current lender, use loan amount on the last 1098 issued, and the latest origination date.

Any 1098s not directly related to the refinance should get entered separately.

[sidbee]

Can you pls explain what does "1098 not related to refinance means" ? I only have 1 loan and some of the 1098's are related to refinance and some due to sale of the same loan to a different vendor.

These below are all related to the Same Loan. Can you pls confirm which would are not related to refinance ?

1. Original 1098

2. First Refinance 1098

3. First Refinance/New Servicer 1098

4. Second Refinance 1098

5. Second Refinance/New Servicer 1098

6. Third Refinance 1098

7. Third Refinance/New Servicer 1098

[Cynthiad66]

Based on the information above, it appears that you refinanced three times and the loans were purchased each time.  The refinances are the loans initiated by you for whatever reason.

Use this link for additional information:  Mortgage Refinance Deductions

Mortgage interest is usually reported on Form 1098, Mortgage Interest Statement. After you enter your 1098 in TurboTax, we'll ask a series of follow-up questions to make sure you're qualified to take the deduction.

For tax years 2018 through 2025, you can only deduct the interest from the amount of your loan that was used to buy, build, or improve the home that it’s secured by.

If you’ve ever used part of this loan to pay for things other than this home, you cannot deduct the interest from that amount of the loan, even if the transaction didn’t take place this year.

Don’t worry, we’ll help figure out what amount of interest you can deduct.

Examples of common ways you might have used this money not on your home include:

• Making a downpayment on a different home
• Funding improvements on a different home
• Making a payment on a different loan or debt
• Having miscellaneous large purchases

Example: John took out a home equity line of credit on his home on Tuberose Street for $40,000. He used $25,000 to remodel his kitchen and bathrooms in his Tuberose Street home, and $15,000 as a downpayment on a second house on Snowdrop Lane. He can only deduct the interest he paid on $25,000 he used to improve his Tuberose Street

[sidbee]

I did not take any cash out  and have only 1 home mortgage ..

What do i do with the following ? , as when i add each of these 1098 , Turbo tax is adding the Remaining Loan Balance and total become more than 1Million and my return become very less, whereas the loan amount was never more than 350k.

1. Original 1098

2. First Refinance 1098

3. First Refinance/New Servicer 1098

4. Second Refinance 1098

5. Second Refinance/New Servicer 1098

6. Third Refinance 1098

7. Third Refinance/New Servicer 1098

[GWR08]

In my case I have a limited home mortgage interest deduction.  For the reasons mentioned in other postings, TurboTax is not calculating the interest deduction correctly.  I just spoke to TurboTax customer service and the representative suggested that I manually override the limited home mortgage interest deduction to correct for the bug in the software instead of changing any of the inputs relating to Form 1098.  I expect either approach would get you to the right end result.  Since the information on Form 1098 is furnished to the IRS, I was concerned that changing any of the inputs might trip a flag for the IRS.  I am able to override the limited mortgage interest deduction on the "Mortgage Interest Limited Smart Worksheet".

[huongandbaoan]

Hi 

would you please tell me how to find and override the limited mortgage interest deduction on the "Mortgage Interest Limited Smart Worksheet".

This is maddening!

thank you

[YanaC]

Does TurboTax have any way of implementing the guidance from Publication 936 that clearly indicated that, even if a mortgage origination date is after December 15, 2017, the debt is considered "incurred" prior to December 16, 2017 so long as certain conditions are met?  TT is treating my mortgage interest deduction as limited because my mortgage (for >$750k  but <$1M) was incurred in Feb 2018.  However, the publication provides "a taxpayer who enters into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, is considered to have incurred the home acquisition debt prior to December 16, 2017."  That is exactly my situation, which means I should be subject to the $1M cap, and my mortgage interest deduction should NOT be limited. 

I can only get to the right deduction by choosing an artificially low "outstanding loan balance on Jan 1, 2021" and I can't edit any of the underlying worksheets to either indicate that the limit doesn't apply to me or to replicate the work from the Pub 936 worksheet.  This is exceptionally frustrating.