I refinanced and have two 1098 forms

[JamesG1]

@rcgrosso1

Perhaps this will be helpful.

In TurboTax Online Deluxe, I was able to enter a home loan on an IRS form 1098 and the second IRS form 1098 for the refinanced loan.  For the refinanced loan, I used the balance of the loan at the time of loan pay-off. 

I was given the full mortgage interest deduction and the Home Mortgage Interest Limitation Worksheet did not add the two mortgage balances together.

The entries were made at Federal / Deductions & Credits / Mortgage Interest (Form 1098).

Entries for the original loan

Do any of these uncommon situations, I entered None of these apply.

Did you pay points, I entered I’ve already deducted.

Was this loan paid off or refinanced, I entered Yes.

Is this loan a home equity, I entered No, this is the original loan.

Entries for the second loan

Do any of these uncommon situations, I entered None of these apply.

Did you pay points, I entered I didn’t pay points.

Was this loan paid off or refinanced, I entered No.

Is this loan a home equity, I entered Yes, this is a loan I’ve refinanced.

So what type of loan is it? I entered A mortgage loan that I’ve refinanced.

Have you ever pulled cash? I entered No.

[GoodTaxTimes]

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@rcgrosso1 wrote:

Turbotax takes multiple 1098s and and treats them as separate loans, increasing the loan amount and creating a calculation error.  This has been know to Intuit for years.  Why is this not fixed? Unacceptable.  

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A good point.  I think the way the flow should work, is when they ask if you if the old loan was paid off, it should then ask you if it was refinanced, if you say "yes", it should ask you to enter the details of the new loan and do the math accordingly.  I'll call out again, you can't blindly treat the loans as unrelated if the sum of your original mortgage(s)  exceeded $750k and originated on or before Dec. 15th 2017, as the TCJA of 2017 page 33, section 11043, sub-section a (i), paragraph II & III state:

‘‘(II) LIMITATION ON ACQUISITION INDEBTED- NESS.—Subparagraph (B)(ii) shall be applied by substituting ‘$750,000 ($375,000’ for ‘$1,000,000 ($500,000’.

‘‘(III) TREATMENT OF INDEBTEDNESS INCURRED ON OR BEFORE DECEMBER 15, 2017.—Subclause (II) shall not apply to any indebtedness incurred on or before December 15, 2017, and, in applying such subclause to any indebtedness incurred after such date, the limitation under such subclause shall be reduced (but not below zero) by the amount of any indebtedness incurred on or before December 15, 2017, which is treated as acquisition indebtedness for purposes of this subsection for the taxable year.

Meaning to handle this grandfathering correctly, you need to carry forward the origination date of the original loan in such cases to ensure this clause takes effect, as well as retaining documentation until the balance of your mortgage (or mortgages) falls below $750k.

So if you have loans totaling more than $750k which originated on or before Dec. 15th, 2017, do be sure you keep this in mind, so you aren't short changed.

[palmpine7382]

To anyone else encountering this issue - I highly recommend calling Intuit customer support.  If you walk them through the bug, they will transfer you to a TurboTax Live representative who will have you share your screen and walk you through your specific circumstance.  They did this for me when I called and showed it is a bug.

I don't think Intuit's product team will prioritize the problem unless it can see that the issue is weighing down its resources and complimentary Live support to unhappy customers.

Sadly, this issue is going to cheat many unknowing people out of a higher refund.  It really should not be buried in a tooltip, notably in a year where there were a record number of refinances. @JamesG1 

[ReneeM7122]

@GoodTaxTimes

You are correct, the carryforward of the origination date is imperative because as you know, once the loan is refinanced, and if you combine a home equity loan, the mortgage interest from the new loan isn’t tax deductible. Only the loan amount when you originally acquired the property remains deductible.

https://www.irs.gov/publications/p936  

In order to keep this clear and to prevent amounts from being added together when multiple 1098s are entered, this TurboTax article is particularly helpful in explaining.

[Lucrecia]

I have two 1098 from same lender, and when entered separate it show outstanding loan amount as twice of what I owe. How to solve.

[ReneeM7122]

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.

 Here is a TurboTax FAQ about deducting Mortgage interest.

@Lucerecia

[Kaiwen2]

I have same problem.

[JohnB5677]

This may be a work around if you have multiple 1098s.  I suggest you enter each one separately.

If a Mortgage is paid off, or re-financed you should:

• Enter $1 in Box 2 Outstanding Mortgage principal for the Refinanced / Paid off mortgage
• Every 1098 should be posted.
• The final 1098 for that property will have the full loan amount as reflected in Box 2.
• If you have multiple properties, you should follow this procedure for each property.

This will properly record every 1098, and avoid any issue with mortgage limitations.

When you have more than one Form 1098 with the refinance info and both show the same balance of the mortgage, TurboTax adds the amounts together. And that may lead to a limitation of the deduction, because the balance is then overstated. To avoid this, make sure that you're not reporting the same mortgage balance twice.

If your combined home debt is under $750,000 ($750,000 for married filing jointly and $375,000 for married filing separately), there's nothing new for you to do in 2020. Enter each 1098 as you normally would.

[dan971]

That won’t work for grandfathered mortgages over $750000, will it?

[GoneSailin74]

It SURE would be GREAT if Intuit just FIXED this in the SOFTWARE!!!!

[GoneSailin74]

ReneeM7122, that link is only helpful if I'm married.

[AmyC]

@dan971

The worksheets are trying to do the math for you. Be sure to keep your origination date to preserve the grandfathering. You can use $1 method  or you can combine amounts on one form, correctly done, both methods lead to the right answer for your return.

[dan971]

@AmyCwhen can TurboTax customers expect TurboTax to do this simple calculation correctly, avoiding all of this nonsense? 

Regarding using $1 to keep them separate but use the date from the first loan, this seems terrible convoluted and way to easy for your customers to mess up.

[AmyC]

@dan971  Some people are brighter than others and  the advice can vary depending on the circumstances. Remember, the IRS sees the mortgage interest and points on your sch A. See About Schedule A (Form 1040 or 1040-SR), Itemized Deductions. The IRS computer will verify all 1098 forms received from the issuer and verify your entry is less than or equal to the amount. The IRS will look at balances to see if there is a limitation. In your case, the grandfathering date is important.

I can't speak for what the tech department does or plans to do. I do know that after you file your return, there is a place to make comments and those are read. 

[GoneSailin74]

@AmyC 

is it too much to ask that the software correctly handle multiple forms so when the IRS cross checks it doesn’t raise red flags that the value I reported doesn’t match either form?

Some people are smarter than others, and some software can correctly handle the tax code, and some can’t.