How can I enter two 1098's for a mortgage transferred during the year without the mortgage balance being double counted (thus limiting the mortgage interest deduction)?

[bmwolk]

My mortgage was transferred to a new lender during 2020 (not refinanced or paid off). I entered the values for both 1098's in TurboTax. If I include non-zero values for "Outstanding principle balance" for either lender, TurboTax seems to count the two lenders as seperate mortgages that together exceed the $750000 limit, thus greatly reducing my mortgage interest deduction. This seems to have been a problem in prior years as well. How can I prevent the double counting without setting "Outstanding principle balance" to zero?

[AlanT222 · Accepted solution]

Some TurboTax customers are experiencing an issue with their Home Mortgage Average Balance. This can cause the Home Mortgage Interest to be incorrectly limited.

If you're experiencing the issue above, please go here to receive email notifications when any updates related to this issue become available.

[mk1700]

I have the same question. I am using TT Premier desktop edition. I've signed up to be notified using the form link provided, but what is the resolution - are we waiting for TT to provide a fix for this question? Thanks! 

[bmwolk]

The resolution is to combine both 1098’s into a single entry in the software (e.g. add the mortgage interest together, etc.). TurboTax included guidance in the Help for this, although I remember it not being that straightforward to find. 

[ToddL99]

Enter $1 as the Outstanding Mortgage Principal balance on the first 1098, the one from the lender you no longer have or use.

Enter the actual Outstanding Mortgage Principal showing in Box 2 of  the current lender's 1098.

The above approach will keep the program from "double-counting" your outstanding mortgage principal balance. This will not have any effect on your tax calculation and will not generate an error in either TurboTax or with the IRS,

From an economic perspective, it is accurate - you owed virtually nothing on the first mortgage (the one that was transferred to a new loan servicer or refinanced out of existence).

There are many places in TurboTax where you must make a non-zero entry, primarily to let the program know that you answered the question and that the answer makes some sense.  

In this case, entering "$1" tells the program that you didn't forget to answer the question and that you had at least some amount of a mortgage loan balance to justify claiming an interest deduction. 

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

[mk1700]

Thank you @bmwolk  @ToddL99! 

Both your approaches yield the desired and accurate result of applying 100% of the mortgage interest paid towards the deduction i.e. on line 8a of Schedule A (in my case the mortgage balance is less than the 750K limit). However, the Deductible Home Mortgage Interest Worksheet in TT Premier still has some funky math with double counting. It just seems to not transfer this error onto Schedule A. Very strange.  

Overall, this seems to be a common scenario based on the number of users reporting this problem in the Community in successive tax years. Disappointing to see TT is not handling this in a user friendly manner in the step by step, and we have to resort to workarounds to get the right deduction.