Mortgage interest error

[smith29422]

I have four mortgages listed.  My refi and the three times they sort my mortgage in one year.   In TurboTax I had to put $1 in three of them to get the error messages to go away.  Since I doubt that the IRS would be too happy with this, I can't file my taxes until Intuit gets their act together and fixes this bug.

[MikeDemler]

Similar situation here. I upgraded to Premier, so got to talk with someone on the phone. He claims he'll escalate for a bug fix, but who knows if or when that will happen. He forwarded my call to one of their so-called tax experts. What a joke that was! As soon as she reviewed my issue she just forwarded me back into the system! 

[MikeDemler]

Hey Intuit, are you reading this?

This should be an easy fix. 

(1) The step-by-step guide never asks for the payoff date (if any) on a mortgage, even though that's part of the underlying worksheet.

(2) Then, if the origination date is earlier than 2020 it just defaults to 12 months, even if I enter the "Date loan was paid off" in the "Smart Worksheet". Ain't that a misnomer!  

(3) For a mortgage that did originate in 2020, it calculates  the proper term (e.g. 7 months).

(4) Because the program ignores pay-off dates, however, it just adds up the principal from all of them. That can erroneously cause the mortgages to exceed the $750,000 limit on interest deductions. This became evident when I looked at my CA Deductible Home Mortgage Interest Worksheet. The "average balance of all home mortgage debt" is the sum total of all the mortgages I entered, even though they didn't exist concurrently! 

(5) I found that right-clicking on that average balance box allows me to select "override" to enter the correct mortgage balance, but haven't seen how to fix that on federal yet. 

[Rechelle2020]

Solution:

Open Forms & go directly to the Home Mortgage Interest Worksheet (Home Int Wkst in the quick list on the left).

It is actually a 2 page form that has a place to enter for "D Date loan was paid off, if paid off in 2020" and "E Outstanding mortgage principal as of 12/31/2020 (or pay off date, if applicable)".

Check box #9 on the worksheet: "Check this box if you refinanced..., paid off..., or sold..."

When you have multiple 1098s for the same property, enter in sequence from oldest to newest. Enter the SAME DATE of the subsequent origination (newer or current loan) that you enter in "D Date loan was paid off," and "$0" in "E Outstanding mortgage principal" (the loan was paid off by a newer loan).

Once you have completed the oldest loan in 2020, use "Quick Zoom" at the bottom of the worksheet to open a second blank worksheet to enter the information for the next or current loan.

This is what I did and then I checked my Schedule A to make sure it worked as expected. The mortgage interest was combined perfectly for both loans at almost $19K without limiting to a little over $14K like it was before!! 

I learned that using the default deduction wizard skips important information that you can enter yourself if you go directly to the forms and answer all pertinent questions for each loan appropriately. Entering this info in the worksheets enables TT to differentiate between concurrent loans and a single loan for your primary residence that changed hands throughout the year resulting in multiple 1098s.

Hope this helps.

[enraptored]

🙄-- CA really skunks us on this! My little $300K mortgage (refinanced twice last year, transferred to 4 other servicers so I have SIX 1098s!) appears to be well over the million dollar limit because of the way TT handles this.

I was ready to purchase Audit Defense for $45 to just get this over with and let their tax experts handle any fall-out for me ... but now I want to get my full deduction credit from CA, so will try manipulating the forms themselves instead of using TT's interface. Grrrr!

[MikeDemler]

After performing further research, it appears that TurboTax has implemented a literal translation of the procedure in IRS Publication 936. https://www.irs.gov/pub/irs-dft/p936--dft.pdf 

That Publication describes the 3 categories of mortgages (pre 10/13/87, 10/13/87-12/16/17, and post 12/16/17). But it fails to distinguish between mortgages carried concurrently, and two different mortgages, where the 2nd refinances the 1st. I understand the reasoning behind using an averaging method to calculate the deductibility of two concurrent mortgages, but I don't think this procedure is meant to apply to the latter situation. I'll need to consult an accountant or the IRS on that one. 

[enraptored]

Thanks, Mike! I read that IRS language numerous times yesterday ... yikes! When I went through the screen prompts in TT for the umpteenth time, I simply said "no, I didn't take cash out" for the three extra "servicer" 1098s, and that fixed my deductibility issue  for the federal return.

I just tried your override idea on the state form and it gave me full credit for my mortgage interest and upped my refund by another $150 or so. But I'm leery about how the state's tax board will handle it. So, I'm going to sleep on it all tonight and decide tomorrow whether to just throw caution to the wind, file both returns and see what happens. 🤔

[Kaushal]

Ive run into the exact same problem,  my mortagage company transferred the load to someone else during the beginning of 2020 and then i refinanced later in the year. So I have 3 1098's for this year. What is the recommend solution from turbotax for this? Can anyone from turbotax or intuit respond? Or anyone from the community can respond and suggest the right solution to this. Appreciate your help.

[Kaushal]

Did you use this method to fix the issue? Did it work.

[Kaushal]

Hi,

Did you get a response from turbotax on a solution for this? Can you please share if you did? I have the same issue.

thanks

[MikeDemler]

Kaushal, 

Intuit supposedly put me on a "fast-response" list regarding this issue, but (no surprise) I haven't heard anything yet.

But since my first post, I discovered that TurboTax is just following the very confusing IRS Publication.  My expectation is still that refis should be treated individually, rather than this weird "average interest" formula, which makes more sense for people with 1st and 2nd homes. I can't believe the intent was to penalize people for refinancing, which the TurboTax calculation does. 

Since my wife and I file separately, and she uses an accountant, I referred the issue to them. I'll post an update when I get the expert's analysis. 

-Mike

[ReneeM7122]

If the loan was sold to another lender, it's not the same as refinancing.  It is the same loan that it was before; it was never paid off.  So you don't want that information being added together.  Some folks on this thread are talking about refinancing and some have had their loan sold.  If your loan was sold, only use the 1098 from the ORIGINAL lender.  The information will be very similar but use the legal name from the original one.  DO NOT input both 1098s or TurboTax will add them together.

If you refinanced, follow these steps:

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.

@Kaushal

@MikeDemler

[smith29422]

I never got a response from TurboTax.

[D Ernst 65]

Absolutely NOT,  its as though they don't care.  I forced the system to ignore adding the various refi mortgages together and appropriately filed with the correct and acceptable interest expense.  Ill be looking for some diff software to do my taxes in the future.    

[MikeDemler]

It's not entirely (or even mostly) Intuit's fault. If you read the IRS Publication, you'll see that TurboTax is just implementing a literal translation of its instructions.  The accountant I consulted agrees that sequential refinanced mortgages should be treated individually, not added together. Now the trick is how to do that in Turbo Tax.