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

[GWR08]

Hi.  I am using the download version of Turbo Tax Premier for the Mac.  In the upper left hand corner click on "Forms".  Scroll down to the Form called "Tax & Int Wks" and open it.  Scroll down to "Mortgage Interest Limited Smart Worksheet" and go to item A 2.  The amount of the interest deduction is in blue which means you can edit it.   

[GWR08]

I think you make a good point.  Instead of changing inputs to try to trick TT into coming up with the right deduction, you may want to just override the interest deduction with the amount you believe to be the correct amount as was suggested by TT customer service.  You are not required to submit your calculations to the IRS.  However, you should document your calculations in case you are ever questioned by the IRS.  

[YanaC]

Thanks!  That worked! I hadn't noticed that the interest amount on that worksheet was editable.

That said -- it's annoying to have to come up with a work-around for a tax law that went into effect 3 tax return cycles ago.  It's particularly frustrating because TT seems to have changed their approach on this point this year; in the last two years, it just flagged that I needed to go look at the IRS publication and then invited me to put in the number that I calculated to be the correct deduction.  This year, I was really hopeful that they'd figured out how to automate it (since I no longer had the option to input the value myself), only to realize when double-checking the way the form had filled in the numbers, that it was materially haircutting my deduction, with no real explanation.   Anyway, thanks to GWR08 for the help and I hope TT figures out a way to fix this issue before this limitation rolls off in 2025!

[Arahova]

So after I combine the interest paid in Box 1, should I then check the box below it that states "The interest amount I entered is different than what's on my 1098."

Thanks

[paulhey]

I have a similar, but different situation.

We sold and bought a home in September.

The sold home was ~$500K in principle.  The purchased home was >$1M, and we have 2 1098's, one from the initial mortgage and one from the back who bought the mortgage.

I've played around with "gaming" the tool a couple of different ways, to include combining the 2 1098s on the new purchase, yet it seems to always reduce my deduction no matter how I enter it.

Can you please provide guidance so I can get the full - I guess up to $750K - deduction?  Maybe I'm doing something wrong with the sale...don't know.

Thanks

[GWR08]

Hi.  Please read my previous posts and you will find the answer to your questions there.  Basically, all you need to do is manually enter what you believe to be the correct mortgage interest deduction. 

[Neutrinoshead]

you cannot override values in the worksheets themselves in the online Version! 

[Neutrinoshead]

i appreciate your response, unfortunately in the online version you cannot manually update forms 😡

[galenbeers]

Hi @paulhey  I have the (almost) exact same problem as you. I am using TT premier desktop and there is a knowledge-base provided (a link that branches off the 1098 entry page) that seems to recommend a workaround and calculations for our situation. Sorry for the long post, but I hope this will help you out. I also really hope TT issues a fix into the software that eliminates the need for a workaround (the whole reason TT exists is to do these calculations for us so I would hope they find it a requirement). 

I'll continue to try and find an answer from TT and please do the same and let me know if you find anything out (I have searched the support page and messaged numerous "experts", but no one has provided a simple and clear answer yet.)

Best!

Galen

I had 2 "loans" in 2020 (for which I have interest and points to deduct).

Loan 1 for Home 1 - I sold this home in December of 2020. The loan originated before 2017 and was for less than $1MM. I received 1 1098 from the Bank (we'll call bank A)

Loan 2 for Home 2 - I purchased this home in August 2020. The loan originated in 2020 and was for more than $750k. Adding to the issue, Loan 2 was sold to another bank in 2020, so I received 2 1098s for this loan (from Bank B and C)

Here is the guidance I received on how to solve this from TT Premier desktop

For Loan 2 (that was sold to another lender):

1. Add the Mortgage Interest Received, Mortgage Premiums (if any) and property tax amount from each form and enter the totals for the original lender only in TT. 
   2. Enter the remaining items from the original lender 1098 loan for the Outstanding Mortgage Principal (Box 2), Mortgage Origination Date (Box 3), and the checkbox on box 7 (address of property securing the mortgage)

For the multiple loans (Loan 1 - before 2017 and less than 1MM and Loan 2 - after 2017 and more than 750k)

Home 1 ($1mm limit)

1. Calculate the average balance - (beginning balance + ending balance)/2
   2. Calculate the percentage to deduct -1,000,000/ average balance = 1 (do not go over 1 or 100%)
   3. Calculate the deductible amount of Interest - $total interest * 1  (Report on Box 1 on the 1098)
   4. Deductible Interest =$18,000 (Enter for Interest on Box 1 on 1098 for new home)
   Home 2 ($750,000 limit)
   1. Calculate the average balance - (beginning balance + ending balance)/2
   2. Calculate the percentage to deduct -750,000/ average balance (do not go over 1 or 100%)
   3. Calculate the deductible amount of Interest - $total interest * percentage to deduct (Report on Box 1 on the 1098)
   
   Box 2- Make sure you enter $0 on each 1098.
   Total Amount of Interest Deducted on your Tax Return = deductible amount of interest on Home 1 + Home 2

Questions outstanding

Do Check the box in TT that asks if the amounts I am entering for box 1 are different than my 1098 (and if so, what do I enter in the subsequent notes?)

What about points, I paid points for Loan 2, do I just enter those for Loan 2 in TT ?

Is there a knowledge base or expert that know about this issue that can weigh in on if the software will eventually be supporting this vs asking users to implement the workarounds above?

[GWR08]

In my case I had 2 mortgages with different banks on two properties for part of the year. One of the mortgages was before 2017 and one was new in 2020 plus I refinanced the 2020 mortgage.  Not sure if Galen had multiple mortgages in between buying and selling a home.  Anyway, based on my understanding of the rules for applying the limits, if one has multiple mortgages at the same time, one needs to aggregate their different mortgages to determine where they are with regard to the limits. Even if the individual mortgages are below the limits, in the aggregate they may not be.  Plus, in my case I had different limits to deal with.  So, as one can see, this can get pretty complicated (which may be one reason why TT doesn't have a fix for this yet).  I ended up creating a spreadsheet that tracked all of this in the aggregate by month, applied the respective limits, and then pro-rated the interest similar to how it was described by Galen.  For me it would have been difficult to determine how to change Form 1098 inputs on TT in order to come up with the right interest deduction.    

[asiddiqi7861]

I am still having issues, I refinanced my personal home in 2020 and as a result, I have two 1098s from different lenders. I combined them together, as suggested to one but still my itemized deductions for mortgage interest of $21,676 drop down to $2012, and my expected total itemized deductions of $33,785 drop to $14,419 instead. As a result, TurboTax suggests converting to Standard deductions of $24,800 to get more refund. I had almost a similar situation in 2019 taxes but I didn't see any issue then. As you can see, I am losing $3-4K of refund because of this bug. Is there any way to override the calculated entries? Please help!!

[huongandbaoan]

Hi Asiddiqi7861

I have the same exact situation as you.

this is what i did.  I have the download version of TT and I used Mac Air laptop.  and it worked for me.

-I read the IRS publication 936

-I calculated my interest deduction amount

-I "overide" the "deductible home mortgage interest worksheet" by entered my own numbers i got from my calculation.

-Then I filled out the questions in TT for 1098s exactly the way it is reported to the IRS (on the forms I received)

TO calculate my interest deduction amount

*add the beginning loan amount to the ending loan amount 

*divide the result by 2--this is your resumed average balance  (normally you can stop here if you only have one mortgage loan)

Do the same calculation for each loan (original and refinanced )

*take this resumed average balance result and multiply by the number of months you have for each loan --

*Add results for loan 1 and loan 2 and divide the result by 12 (months)--- this is your weighed average balance  (assuming that you only have one loan per month and you have a loan for each of the 12 months last year)

Next I calculate the Qualified loan limit

*if your weighed average balance is less than 750K, you are done,  you can deduct the entire amount of interest you paid.  Check the box that says you don't need to limit your interest amount

* if it is greater than 750K , you can follow the instruction on the bottom part for the worksheet.  straight forward math calculation.  

*divide 750K by your average balance to get a decimal point

*multiply the interest you paid by this decimal point-- this is how much you can deduct.

Now to override TT form

* look at the APPLE tool bar across the top left hand corner of your laptop (not TT tool bar)

* click on "view"

*click on "open form"

*look on the drop down list and find "ded home mortgage interest worksheet" (note you won't be able to see the whole name,  just "ded home mort"  I think. 

*open the form-- put your cursor at the box where you want to enter your number, then click on "edit" on the APPLE tool bar.

*click on "override" to enter your number

*move your cursor to the next box.  If you are unable to enter your number, repeat the clicking "edit" then "override"  sometimes i can enter a few boxes at a time before I need to click edit and override, sometimes i had to click it for each box.  If it doesn't work, try right click. 

You need to search for the same form under the state forms and repeat the same procedure.  

It worked for me.  I already filed my tax return with no problem

Good luck!

[huongandbaoan]

By the way, California qualified mortgage loan limit is 1 M.  

there's a typo in my previous response--  resumed=presumed = presumptive

[asiddiqi7861]

Thanks guys for your valued input. I was able to figure out how to fix it manually in the forms and it doesn't require changing any numbers. If you change the No option to Yes in item C of your "Home Mortgage Interest Limitation Smart Worksheet" (select "Forms" from the top menu to see the worksheet when you are finalizing your "step by step" entries), the Acquisition Interest (Item F.9) reverts back to the total interest paid as it is supposed to be. Hope it will help others too to fix this frustrating bug!!

[BigNOLA]

Thank you so much for the fix. I had three 1098s due to a refi and this fixed my issue. My only other idea was to manually override the IRS form, but I am more comfortable with this solution.