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Bug with refinance on a large mortgage

Forum|Forum|5 years ago
January 23, 2021
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There is a bug in how Turbotax calculates mortgage interest deduction if you refinanced. In 2020, I refinanced a ~$970k loan into another ~$970k loan. When I enter both 1098 forms, TurboTax acts as though I paid interest on $1.94M of principal, and prorates the deduction as $750k/$1.94M. Even though in fact it should prorate as $750k/$970k. Are there any workarounds?

Best answer by Katie_B

If you are experiencing an issue with the Average Balance where there was a refinance involved, please see this FAQ: What do I do if I have multiple 1098s from refinancing my home debt?

This post will be closed to replies. If you still need assistance feel free to start a new post.

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jlbrickAuthor

Level 5

The specific problem is that on the "Deductible Home Mortgage Interest Worksheet", a loan that was paid off in February still shows as "12" in "Months loan oustanding". This is even though on the "Home Mortgage Interest Worksheet" I have checked box 9 ("paid off this loan") and included the payoff date in the Home Mortgage Interest Limitation Smart Worksheet.

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jlbrickAuthor

Level 5

Looks like a similar issue was reported last year:

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/deductible-home-mortgage-interest-worksheet/00/1050550/highlight/true

fanfare

Level 15

just enter one 1098 with the amount of total interest that you paid

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jlbrickAuthor

Level 5

Won't that confuse the IRS? There would be a disparity with the information furnished to the IRS vs the information in the Deductible Home Mortgage Interest Worksheet, right?

Best I can come up with is to override line 7 of the Qualified Loan Limit with the correct value. Sigh.

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Reds44fan

Level 2

I have a similar issue where I purchased a new home in December 2019 and borrowed $800k but did not sell my prior home until January 2020. TT is adding the full payoff amount of the second home to determine the denominator of the deductible ratio even though I only had that loan for one month in 2020. I haven't determined the best way to "trick" the software into doing it correctly, but this bug almost cost me $2,500. I feel bad for anyone who trusts TT without reviewing the calculations. Seems like I should get a refund of the money I spent for this under their Maximum Refund Guarantee.

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mtpnw2018-

Level 2

I totally agree with you. You shouldn't have to double check their calculations. A $450,000 loan refinanced for $449,000 should not appear as a $900,000 loan with limits!

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angels2k

Level 2

Hi guys,

Just wanted to report that TT online has been updated.

Its now asking principal balance pay off amounts and dates for loan acquisitions. This was my scenario, 2 1098's because of it. Its finally calculating the average instead of adding them together.

I am in the process of finalizing.

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angels2k

Level 2

I am on a similar boat. I refied on 2019 and my loan was sold to another bank in 2020. I ended up with 2 1098s for 2020. I am in the process of doing my taxes now and using the ONLINE turbo tax. I believe its thinking I am over the $750k. I think its combining the two amounts and automatically clicking "yes" for Does your mortgage interest need to be limited? I do not have the option to click "no". Its not allowing to continue without entering the "Limited amount to report on SchA, line 8a". I have no idea what to put there. I have an amount automatically entered on the line above, "Sum of lines 5a through 5d below". I am considering entering the same amount. Anyone know?

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jlbrickAuthor

Level 5

My "workaround" for now is to create a synthetic 1098 that combines the values. So it has the sum of the interest that I paid on both loans, but a principal amount that's equal to the weighted average principal that I held throughout the year.

I included a note to the IRS explaining the situation.

At the end of the day, the correct amount of the deduction is a function only of 1) total interest paid, and 2) average amount of origination principal. So using this workaround produces the correct amount of tax. I wish that TurboTax could do this correctly on its own though. I feel like if I had access to the source code I could fix it quickly.

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JZ F

Level 2

Maximum refund guarantee looks like a PITA to actually access. Not clear to me whether you can use a workaround to still file with TurboTax and still qualify. Could be worth a try, but it's a lot of work for $50. Here's the legal language:

To qualify, the larger refund or smaller tax due cannot be attributed to variations in data you provided for tax preparation or for positions taken by you or your preparer that are contrary to the law. If you received a larger refund amount or must pay a smaller tax due using another tax preparation method other than TurboTax, you must notify Intuit within sixty (60) days of the date you filed your tax return by submitting a claim with the following documents (i) Maximum Refund Guarantee Claim Request Summary, (ii) copy of your TurboTax store sales receipt or shipment packing slip, (iii) copy of your proof of payment for another tax preparation method (if applicable), and (iv) copy of your TurboTax data file, (v) copy of the printed return from TurboTax and the other tax preparation method, and (vi) letter stating your refund or tax due amount using TurboTax and your refund or tax due amount using another tax preparation method. Send it to Intuit Inc., ATTN: Maximum Refund, 2800 E Commerce Center Place, Tucson, AZ [social security number removed], US. Please use a traceable mailing method and maintain copies of submitted items for your records. Claims of non-payment will require photocopy substantiation of all required items. Please allow up to 6 weeks for processing and delivery. If after 8 weeks you have not received your check, contact us at https://ttlc.intuit.com/community/using-turbotax/help/what-is-the-turb[product key removed]r/00/25632.

Even though I was told an update for this issue was available via email notification and I updated my desktop version, it still did not do the math correctly (actually no difference from earlier version). What a joke and why can they fix such a simple problem?!

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pugpapa75

Level 3

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.

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MattB

Level 3

I'm experiencing the same bug and spent about 2 hours on the phone with TT walking them through it a couple of days ago. I supplied a diagnostic code for them as well. I'm still waiting to hear back from them.

Can anyone confirm that you can't efile if you override calculations on the interest deduction worksheet? I didn't know this. I generally prefer not to alter the 1098's if possible. I'm already annoyed at having to spend so much time troubleshooting their programming error after spending $50 for the software. I'll definitely be requesting a refund if they don't fix this and I can't efile. I'll also be looking for new tax software to use despite using TT for the last 12 years. This is ridiculous for such a simple and common tax situation.

In case it helps them narrow down the issue, I'm using the download version (desktop) for Mac. What version is everyone else using that's seeing this error? Maybe it's only affecting one of the versions and they can apply a solution from a version that does work correctly.

I'm also very concerned that this was an issue in 2019 that seems like it was never fixed. Aside from the frustration we're all experiencing trying to sort out workarounds, imagine how many people didn't catch this software error when they filed their taxes and have no idea they overpaid their taxes. It looks like Turbo Tax calculated too much tax liability for just about everyone who refinanced in 2019 (and now 2020) with a loan balance of at least half of the federal limit (or even smaller loan balances if they had more than 2 1098's). This seems like a class action lawsuit waiting to happen if they continue to show no interest in fixing it. Hopefully someone from TurboTax chimes in soon with a fix or an ETA for the fix.

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jlbrickAuthor

Level 5

Another duplicate: https://ttlc.intuit.com/community/tax-credits-deductions/discussion/i-refinanced-my-home-loan-in-2020-so-i-have-two-1098-forms-when-i-enter-the-second-1098-i-lose-the/00/1838087

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jlbrickAuthor

Level 5

Another duplicate: https://ttlc.intuit.com/community/tax-credits-deductions/discussion/was-asked-to-enter-value-for-limit-int-points-on-1098-with-error-tax-and-interest-deduction/01/1197435/highlight/true#M128939

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yyao3

Level 2

I finally find the fix or workaround for this. But looks others find the similar.

Please go to form review (Ctrl-2) and find the form named - Ded Home Mort. "Override" the numbers you feel wrong including:

1. Months loan outstanding in "Part 1" in page 1

2. num 7 in "Part 1" in page 2 (which is the most important one): please change it to the right average balance.

And if you find the error in the state return, you can delete it in the state, then turbotax will regenerate the new form with the right data.

The trick part: How to "Override" the data in the form?

originally you only can change the cell with yellow color which are the ones you input in the "step by step" mode. for other cell, you can use "override" to change it. How to override? two methods:

move your mouse on the cell you want to change then

1. Ctrl-D

2. right click and choose "override"

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JantovenNF

Level 5

Posting in this thread to follow. I am having the same issue. I have been told you can override the mortgage average in the desktop version, which seems to be a decent workaround since that is the issue that is being caused, but what about for those using the online version? They appear to be stuck, since they cannot override anything.

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samrom90

Level 3

Posting to follow. I didn't refinance; just had the mortgage sold to another lender two months after the origination date.

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RufusdeDogue

Level 2

I have a similar issue using the online TT Deluxe. Refinanced a $647k mortgage, then the mortgage got transferred so I ended up with three 1098s. Entered all three correctly, got the “error” where the box to limit interest was checked YES. So I went back and deleted the 1098s and re-entered. Same error. Unfortunately, when the software called for me to fix, I erroneously typed $0 and royally screwed up my return. Ended up calling support and after much ado, the rep found this. It is definitely a bug. Now I wait for a fix....

https://ttlc.intuit.com/community/payroll-reminders/help/check-this-entry-tax-and-interest-deduction-worksheet-limited-interest-and-points-must-be-entered/00/1856608

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alder1321

Level 2

Obviously a big issue with TurboTax that should not require any "work arounds". However I'm going a simple route that hopefully doesn't end up biting me but that seems to work. Our situation...we sold our house in June 2020, bought a new house in June 2020 and the mortgage was immediately sold off to another bank. I think a fairly common scenario. The way TT was calculating our average mortgage balance was putting us just over the $750K threshold limiting our mortgage interest deduction (some problem everyone on here seems to be having). For the online version, on the screen that prompts for the balance in box 2 of 1098 (balance at the beginning of the year or start of the loan if acquired during the year) and the balance on January 1, 2021, I simply fudged the balance for the outstanding loan as of January 1, 2021 to get my average under the $750K threshold. I'm fairly certain this information only shows up on the worksheet which doesn't get filed with the IRS. The IRS only sees what's on Schedule A which will be accurate and which I can support if they have any questions. Might not be so simple if you're way over the $750K mark but seemed to work for me.

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hamster70

Level 2

I did what @alder1321 suggested for my refinance and even tho I adjusted down the principal balances so that they totaled under $750k (I actually ended up doing bad math so I ended up at $740k total, when the total of my loan is only in the 400's), TT still shorted me about $1,500 in interest paid. I followed the instructions to total all of my Box 1's together, and only enter the principal amount of only the original loan, and that did the trick. However, I'm feeling nervous about filing this way, as it only reflects one 1098 and I have 2! Additionally, I did cash out when I refinanced to pay off my HELOC (HELOC 1098 is still in TT since it's was a small amount), so while every cent of my cash out and HELOC was used on my home, I'm nervous to misreport it as if I only received one 1098. I think the Schedule A will come out ok, but....I don't know for certain. Any advice from you experts? Ugh. Why can't they just fix the bug properly????

Katie_BAnswer

Level 7

If you are experiencing an issue with the Average Balance where there was a refinance involved, please see this FAQ: What do I do if I have multiple 1098s from refinancing my home debt?

This post will be closed to replies. If you still need assistance feel free to start a new post.