Home Interest Deduction: Multiple 1098s, Box 2 Outstanding Balance still aggregating every loan in that year.

[TryingToUseTT]

I see that a new update came out today to address this, but all they did was update the instructions, not fix one of the problems. I have 5 1098s. My loan coming into the year, my HELOC, my first refi, my first refi which was transferred to another lender, my 2nd refi. The only way the numbers work correctly for me is to aggregate all loans except the HELOC. My main problem is that the box 2 numbers aggregate and that screws up both my Federal return numbers and my California return numbers, making the total debt on my house over twice as much as it really is.

Since this problem has been reported for years do we really think it will be addressed by TT this year?

Please help if you have any solutions. As I said the only one where the numbers are correct is just aggregating them all into one loan (except the HELOC).

[ReneeM7122]

You are correct, there was an update, and some customers are experiencing issues when there are multiple 1098s, refinances and lenders.   Here is our recommendation to best handle this:

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.

Regarding the HELOC, once you got through the steps above, and if you should happen to re-enter the HELOC, here's how:

HELOC

To handle the HELOC refinance in TurboTax, you'll work on two different sections.

How to Deduct Points

As far as filing taxes goes, claiming a tax deduction for mortgage points is a fairly straightforward process. Mortgage points are considered an itemized deduction and are claimed on Schedule A of Form 1040. Here are the specifics:

• Usually, your lender will send you Form 1098, showing how much you paid in mortgage points and mortgage interest

• Transfer this amount to line 10 of Form 1040 Schedule A
• If any of your points were not included on Form 1098, enter the additional amount you paid on line 12 of Form 1040 Schedule A

How do I record my HELOC interest?

You can record your HELOC interest using TurboTax Deluxe Online edition.

To record your interest, login and press the "Take me to my return" button

1. Select the search button located near the top right of your screen.
2. Type 1098 into the search box
3. Select Jump to 1098 from the results list.
4. Answer the questions on the following screens to record your HELOC.

What if my refinance loan is immediately sold to a new lender?

When a refinance loan is immediately sold to a new lender, you'll  use the 1098 that you received from the original lender (assuming that is where you got your 1098 from.)  You did not chose to refinance with lender #2; it was an automatic sale of the loan not of your doing, so you don't have to associate the points with them.

[TryingToUseTT]

We've already established that your instructions do not work.  Is that it?  Should we not expect a fix for this?  Your instructions say "Next, finish adding info for boxes 2, 3, 7, and 11 using Form 1098 for the original loan."  You cannot aggregate box 2.  And if you put zero in for all subsequent 1098 forms it still does not calculate it correctly.

Has TT given up on this or are they actually going to try to fix it?

[cummingscm]

With the PC download version of Premier, I ended up going to the Forms view, "Ded Home Mort" form, right click on Part 1, line 1 to override value, entered my own average balance calculation of original debt, then right click on Part 1, line 7, entered 0, then it calculated the interested deduction correctly for me.  IRS Pub 936 clearly calls out that original debt before 12/16/2017 that is subsequently refinanced (no cash out) is still eligible for the $1M cap. "Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing."

[TryingToUseTT]

I was able to get the correct numbers, but I had to override 2 numbers in the Deductible Home Mortgage Interest Worksheet. Part 1, Line 7 and Part 2 line 12 were calculated incorrectly.  They are supposed to be the average balance, but the were just aggregated so it tripled the amount it was supposed to be.

The problem now is that you can't e-file if you have made an override.  Does anyone have a solution? 

Does anyone think TT will fix this since it has been a problem for a couple of years already.

[JohnB5677]

The mortgage issue can be solved by realizing that when you get a new mortgage the old one will have been paid off.

• The mortgage that you had at the end of 2019, (1st mortgage) will have a principle balance of zero, because it was paid off to secure the 2nd.
• The second mortgage will also have a principal balance of zero.  Because it was paid off to secure the 3rd mortgage.
• Finally, the mortgage you currently have (3rd mortgage) will reflect the principal as of 01/01/2021.

The IRS instructions for completing Form 1098 state that box 2 should be the amount of principal outstanding on the mortgage as of January 1, 2021.  If the loan was no longer being serviced by that company, there would be no outstanding principal on that mortgage and the amount should be "0".  

Entering '0' into box 2 in your tax return is the correct way to handle a loan that has been closed out.

To enter your 1098 Mortgage Interest statement.

1. Log into TurboTax

1. Select Deductions and Credits [Review/Edit]
2. Mortgage Interest and Refinancing (Form 1098) [Edit/Add]
3. Add a other 1098 or select your bank

1. Continue to follow the interview

Note: if you enter your property taxes from your 1098 you will not have to enter them again in the property tax section.

[TryingToUseTT]

This does not work. 

You can't put a zero in Box 2.  When I try, I get, "Outstanding mortgage principle must have a value."  This is for my first mortgage.

[JamesG1]

Some TurboTax customers are experiencing an issue with their home mortgage average balance. This can cause the home mortgage interest to be incorrectly limited.  This may be affecting your tax return.

Please sign up for email notifications when an update related to this issue is available.

See this TurboTax Help.

[TryingToUseTT]

Thank you.  I already signed up last week.  They did not fix the problem, but sent out clarifying statements on how to deal with the issue.  The problem is that, it still does not work.  The choice you have to make is do you want the correct average balance or do you want the correct interest calculated.  I need both to be correct.  Will there be a fix?  Everyone knows its a problem and TT seems like they are going to just avoid fixing it.

[cummingscm]

I called on Friday after the 2/11/21 update came out.  The person I talked to said they knew it was an issue and told me to keep checking the weekly updates.  Not particularly helpful when you want your refund, but hopefully it gets fixed soon.

[TryingToUseTT]

Thank you. I will keep my eye out for it.

On a related matter I'd like a little clarification on some of the prompts and other issues related to this matter.

1)  On the "Tell us about hour you've used this loan" page, there is a check box that says "This loan was paid off during 2020".  Since my first loan was paid off (I refi'd twice this year), I checked it. Then is says "Since you paid off this loan in 2020, enter the final balance of your loan at the time of pay-off in the filed above for December 31 value.  Logically, you should enter zero because it was paid off, but then why the previous statement to enter the final balance? 

Would that be the final balance before the loan was paid off?

2) Then it asks, "When did you make your final payment?"

There are 3 possibilities for me this year.

A)  The last scheduled regular monthly payment.  (11/17/202)
B)  The origination date of the next loan (box 3).    (12/01/2020)
C)  The acquisition date of the next loan (box 11).   (12/7/2020)

I have tried every combination and more regarding my problem with the average balance.  The initial problem still exists however I slice it (hopefully a fix will solve it), but regardless I would like answer other questions listed above correctly.

[bradley3]

Thank You! I am using your approach!  I received a letter today from Turbo tax indicating that I had overstated my mortgage deduction in 2020 as a result of an error in their system!

I had a loan refinanced in February 2021. The lender included the amount in Box 2  prior to payoff. I used this figure  and when aggregated with the new loan I was over the loan limit. Turbo Tax 's system did not recognize the limitation so their error went unnoticed.  I simply replaced the balance in box 2 of loan 1 with zero. (Although, I had to put $1 because Turbo Tax would not accept zero)  People involved in their programming are obviously not critical thinkers and we are paying for it.

I  read some of the other comments  in this forum.. It is a very frustrating situation.