Mortgage Interest Deductions on Refinanced Pre-2017 Loan Zeroing out

[Cash Poor]

I am having the exact same issue as the post below.  Token 1218527

Whats going on with this?  If the original loan was taken out before 12/15/17 and the balance hasn't increased due to a cash out refinance, you get a zero deduction.  Operator error or software glitch continues?

Bug? Mortgage interest deduction zeroing out

I put in my 1098 information and I can see my tax due decrease. My mortgage balance is just over $1M, but it was taken out in early 2017 before the TCJA reduced the limit down to $750k. In any case, I answered the supplemental questions so TurboTax can automatically adjust/reduce the interest eligible to be deducted (a nice improvement from 2020).

Then TurboTax says I might be qualify for a bigger deduction if the original loan was taken out before 12/15/17 and the balance hasn't increased due to a cash out refinance. This is true for me, so I answer Yes. Then TurboTax recalculates and zeroes out my mortgage interest deduction. (I can see that in the wrap up page when it says the standard deduction is best.)  That doesn't make any sense. If I click No, then I can see on the wrap up page that the appropriate amount of mortgage interest is used for my itemized deductions.

Has anyone else seen this?

[zomboo]

Is this just a matter of the mortgage interest deduction not being enough to itemize? This would cause the the itemized entries on the wrap up page to be 0 because you are getting the standard deduction. Or are you sure the program is wiping out an itemized deduction?  Have you looked at schedule A to check what is listed there on line 8a?

[Cash Poor]

Thanks for the quick reply zomboo...

It seems to be a hard fail in the software that just isn't being addressed.  A Yes/No question either gets you no mortgage deduction (instead of $1M limit) for pre 2017 mortgage or a $750K limit if after 2017.  Sample file provided. I hope someone from TT looks at it..

[Vanessa A]

Thank you for the token.  To clarify, did you take any cash out of your loan or was it a refinance to simply get a lower interest rate?  Or is it a HELOC?

@Cash Poor 

[Cash Poor]

Simple refi, no cash out.   If you can, step through the Mortgage Deduction.   2016 original loan $2.5M, refinanced in 2021.  Process breaks down at the  YES/NO question.  Answer of YES results in no deduction instead of $1M mortgage limit, answer of NO results in $750K mortgage limit.

Thanks for checking...

[Vanessa A]

When looking at your diagnostic file, we are able to see the yes and no questions are affecting the calculations.  We  have sent it up the chain for further investigation.  

Are you using the Online version or the desktop version?

[Cash Poor]

desktop.  Issue has been there for years....

[Winegum]

I am having the same issue.  I believe the TT logic has an error because it doesn't ask what the original loan date was when you indicate that this was a refinance of an existing loan.  Instead, TT assumes this loan was the original purchase loan (and specifically asks, "when did you purchase this home with lender XX) rather than asking what the original purchase date was.

[Winegum]

And is capping the interest deduction based on $750k rather than $1m

[Winegum]

And if you use the original purchase date (2014) of the home rather than the refinance date, it completely eliminates the deduction on Schedule A.

[Winegum]

Here is my assessment of the problem:  if you indicate that the 1098 is a refi, you are never prompted for the original loan date. TT asks “when was this loan issued to purchase your home.” If you enter the refi date (in my case 2020), TT uses that date to determine the interest cap of $750k.  If you try to back date the loan to the original loan date (2014) TT zeros out the deduction altogether.  I haven’t paid attention to this in prior years, but I double (actually a dozen times)  checked the math and realized the issue in the current version…

[MayaD]

After checking your Tax file I was able to see the issue you are experiencing. However, this morning after updating TurboTax, I can see the deductible mortgage interest has been calculated correctly and you should be able to itemize your deductions. 

1. Revisit the Deductions and Credits section section
2. Click Edit next to Lender's name 
3. Confirm you entries and make sure you are selecting This Loan is a refinance of previous loan and continue.
4. When you select  Yes to the additional questions (image below), TurboTax will calculate the deductible mortgage interest based on a $1M loan limit. 

Please update your software and go over the Mortgage interest section. If you are still have any issue please post again.

@Cash Poor 

[Cash Poor]

Can you confirm with the TT software team what tax years are impacted by this bug?  Likely many users will have to amened prior year returns.  How many years back do we need to research?  How does a TT user file a claim against the "taxes done right" guarantee?

[Cash Poor]

Can you confirm with the TT software team what tax years are impacted by this bug?  Likely many users will have to amened prior year returns.  How many years back do we need to research?  How does a TT user file a claim against the "taxes done right" guarantee?

[DawnC]

To file any claims or request a refund, please see Important Offer Details and Disclosures - links and procedures are included.