Mortgage interest deduction issues

Forum|Forum|5 years ago
February 27, 2021
2 replies
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I am having 2 issues regarding the mortgage interest deduction that I could use some clarification on.

1. We have a mortgage originated in 2016 for over $1,000,000. I understand that the mortgage interest is deductible up to the first $1,000,000 of debt. The TurboTax instructions say to follow the IRS 936 guidelines and enter the adjusted interest, which for us is around 70% of the actual interested we paid. However, when I do so, TurboTax ends up deducting ~70% of the already adjusted value. If I enter in the full amount of interest paid, TurboTax says our deductible interest is around 70% of the full amount, which is what I expect. Is TurboTax performing the adjustment automatically? Are the instructions simply incorrect/misleading?

2. I later encounter a screen for the CA mortgage interest adjustment. Since our loan originated in 2016 (prior to the 2017 transition to a $750,000 limit), we are still subject to the older $1,000,000 limit. As such, I didn't think we would qualify for the mortgage interest adjustment. However, TurboTax says that we are allowed a $3,000 adjustment. Is that correct?

Thanks for any help. Sorry for the long questions.

TurboTax Premier Online

Best answer by primus1981

1. I printed out the resulting forms and confirmed that TurboTax is automatically computing the correct limited deduction. The Schedule A and Deductible Home Mortgage Interest Worksheet have the expected values and calculations. I think the instructions were misleading.

2. Comparing the Schedule A Deductible Home Mortgage Interest Worksheet and the CA 540/540NR Deductible Home Mortgage Interest Worksheet, it appears that the $3,000 difference is due to an additional $100,000 allowed for home equity debt that raises the qualified loan limit to $1,100,000, compared to the federal limit of $1,000,000.

primus1981AuthorAnswer

Level 2

Cynthiad66

Level 14

There is a known problem with Home Mortgage Deduction. TurboTax is working to fix the problem and the many other issues. There are many changes due to the CARES Act that require software upgrades. We have not been given an expected date for the fix yet. Please check back often to see if you can file your return.

In the meantime, you can try this work around. You did not provide the details of your Mortgage situation and therefore I am giving you a general work around that might help. Please try this.

If there is a refi and there was an outstanding mortgage principal listed in both of them on Line 2 on the 1098. When you do put an outstanding balance in both forms, then the program adds them together and if that number is greater than $750k, then it puts you in the category to "limit interest". To get that to go away, you need to go back to the deductions section and click on "edit" mortgage interest statement. Change the line 2 of the mortgage that you no longer owe on (like the one that you refinanced and paid off) to a 0 (zero) because you have refinanced out of that loan and no longer have an "outstanding mortgage principal". Once you change one of them to zero (the one that was paid off by the refinance) then it should no longer pop up with that error at the end when you go to file.

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