Bug with refinance on a large mortgage

[jlbrick]

Please also note that there is an analogous problem with the California 540/540NR Deductible Home Mortgage Interest Worksheet, where Average balance of all home acquisition debt is calculated incorrectly.

[angels2k]

hello, token number 714734

[jlbrick]

It looks like a duplicate bug has been filed here: https://ttlc.intuit.com/community/tax-credits-deductions/discussion/mortgage-interest-deductible-lim...

You may wish to choose one of these to be the canonical bug report to make things easier on your engineering team when they go to address the issue.

[Ashramx4]

I had this problem this year since I did refinance.  

To handle multiple issues on the forms, I handled it as below:

Use case:

Loan 1 - Opening balance 900,000 (Closed during the year)

Loan 2 - Opening balance 100,000 (Closed during the year)

Loan 3 - NEW 900,000 - Closing balance by end of the year 890,000 

Interest on Loan 1 - 20000

Interest on Loan 2 -   3000 

Interest on Loan 3 -  7000

I did fill the turbo tax data as below, since I have 3 Form 1098.

Box 1 - Mortgage Interest - 30,000

Box 2 - Outstanding Mortgage Principal - 1,000,000 (sum up box 2 values of Form 1098 of loan 1 and loan 2)

Box 3 - Mortgage origination date - 1/1/2018 (from box 3 of Form 1098 of old Loans)

In the subsequent box - for outstanding loan balance on Jan-1st-2021,  I keyed in 890,000.

This ensures that the

- no. of months of the loan to be 12 (in the worksheets)

- average balance to be 945,000

- Interest of 30000 distributed as 750K / 945k - calculated as 23809 for claiming as interest deduction. 

I understand this doesn't represent true values in the worksheets. But with Turbo tax constraints, this workaround seem to be addressing the issue.

Pl. share your thoughts. 

[RecoveringEngineer]

@Ashramx4 this is the workaround others have suggested but I personally don't like it. The IRS is going to receive 3 1098s for your various loans but your tax return will only show 1 1098. Even though the numbers are the sum of all 3 that seems like it would be an easy red flag for the IRS. That's why I was entering all of my 1098's and then just edit the average balance to the correct number in the worksheet. I don't know that there is a "right" answer yet.

[pugpapa75]

Working on year 2 of this bug for me.  This year is even more fun since I have 4 1098s (4 sperate companies handled the mortgage on the same property (with a refinance thrown in)).  TT wants to total all 4 mortgages together which isn't even close to correct.  I'm willing to submit a diagnostic again this year,  since I'm sure I am a bit out of the norm.

[Olly1]

I agree that it's a ridiculous "fix" but the IRS only see the final calculated deduction, not how you arrived at it.

It'd be no different if you worked it out manually and filed on paper.

[jlbrick]

If you do a manual override, you cannot e-file right?

[RecoveringEngineer]

@jlbrick I wasn't aware of that. I still have lots of forms I'm missing so I hadn't gotten that far in the process. That is disappointing if that is true.

[jlbrick]

Inability to e-file with overrides is why I'll probably use the synthetic single 1098 strategy rather than form overrides.

Ideally, of course, Intuit would fix the software bug.  Isn't this software supposed to save us time compared to doing everything by hand? 🙂

[Ashramx4]

@RecoveringEngineer Which worksheet has the feature to edit the average balance? In 'Tax and Interest Deduction worksheet' I see only the 'A2 Limited amount for Mortgage interest' as editable. I don't see 'Average balance' field editable in 'Deductible Home Mortgage Interest Worksheet'

[jlbrick]

@Ashramx4 It's in the Deductible Home Mortgage Interest Worksheet, line 7

[Ashramx4]

@jlbrick  Thanks. But this is not editable in downloaded version.

It doesn't appear in blue fonts which enables me to edit.  It appears in black font and says 'calculated' on top right corner of the form.  It doesn't let me edit. Is there any way to make this editable?

[RecoveringEngineer]

@Ashramx4 I don't know if you're on Windows or Mac. I'm on Windows so I know there if you click on the number in Line 7 then either hit "Ctrl+D" or go to the menu Edit-> Override it will let you change the field.

[jlbrick]

Another duplicate of this issue reported here:

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/deductible-interest-on-refinance...

Intuit, please understand that this is a software error that should be relatively simple to solve.  Are there any plans to address?