Still getting Error - Deductible Home Mortgage Interest Worksheet

[jgackson]

The form is now working, in the sense that it allows filing, but it's still not correct for refinances subject to the mortgage interest limit (although it's not egregiously far off). The interest deductibility limit should be based on the average balance for the year. Pub 936 allows either a simple or a more detailed way to calculate this, and unfortunately TT isn't using either of those.

Say I have a loan whose outstanding principal on 1 Jan 2021was, let's say hypothetically, $1.5-million. On April 1, I refinance the loan, paying off the principal and taking out a new loan for the same amount--let's say, to simplify calculations, $1.4-million. I then make payments on the new loan, and by Dec 31 the remaining balance on the new loan is $1.2-million.

The simple Pub 936 calculation simply averages the Jan 1 balance (which is on the old loan) and the Dec 31 balance (on the new loan), yielding an average balance (1.5+1.2)/2 = 1.35-million. If I'm subject to the older $1-million limit, then I can deduct 1/1.35 = 74.1% of my interest; if I'm subject to the $750k limit, I can deduct 0.75/1.35 = 55.1%.

The more detailed Pub 936 calculation calculates an average balance for each loan separately, and then an average of those weighted by how long each loan was in effect. The average balance for the three months I held the older loan is (1.5+1.4)/2 = $1.45-million, the average for the 9 months I held the refi loan is (1.4+1.2)/2 = $1.3-million, and the weighted average of the two is ((1.45*3)+(1.3*9))/12 = $1,337,500. If I'm subject to the $1-million limit I can deduct 1/1.3375 = 74.8% of my interest, and if I'm subject to the $750k limit I can deduct 0.75/1.3375 = 56.1%. 

What TT is doing instead of either allowable calculation is simply using the average balance for the refinanced loan--that is, for my example it would use the average of the starting balance of the new (April 1) loan and the Dec 31 balance for that loan, (1.4+1.2)/2 = $1.3-million, and use that to calculate that I can deduct 1/1.3 = 76.9% of my interest if I'm subject to the $1-million limit, and 57.7% if I'm subject to the $750k limit. Which isn't very different, but also isn't correct.

So the point is that TT's calculation not only appears to be wrong according to either Pub 936 method for calculating average balance, but also can lead someone who's refinanced and is subject to a limit to claim too large a mortgage-interest deduction. That's very bad.

The only two ways I see to fix this for the moment are the old combine-1098s method (which in effect implements the simpler Pub 936 approach) or to override the calculated average balance in the Ded Hom Mort worksheet with a correct figure calculated outside TT.

[mmefluorine]

I've been struggling with this for weeks too, and have had 3-4 support calls and text.  The resolution keeps getting pushed back.

I've already paid TT to file.  Considering asking for a refund and going elsewhere.  Does anyone know if it is hard to get a refund for services from TT?

[dingo803]

Thanks gjackson,

My situation is not a refi but instead a sale and a purchase.  But interestingly it is essentially doing the same thing for me:  It is using the balance of the later mortgage (in my case the new purchase) to calculate the portion of the interest that is deductible for *both* mortgages.

In my case that is *way* off, because the balance of the earlier mortgage is a small fraction of the balance of the later mortgage.  But it seems likely the same underlying bug, as in both your case and mine it is using the later mortgage balance for the calculation.

The second option you mentioned, of overiding the value in the sheet.  How do you do that in turbotax?

[Nevada707]

Thanks gjackson!

Great work, correctly calculated, clearly explained, accurately documented.  Wish someone at TurboTax had your skills.

My question to TurboTax:  When are you going to do your job and do it correctly?  We have a contract.  I paid the money specified, which was my part of the bargain.  You continue to be in breach of our contract, failing to fulfill your part of the bargain.

[jgackson]

To override a field, you switch to Forms, find the specific entry you want to override, and then right-click or double-click to bring up a menu that includes "Override". Choose that, then delete what's in there automatically and type what you want.

The best thing is usually to override the first place a mistaken result appears. For my case (refi), that's the "Average balance" line in the "Loan 1" column in Part 1 of the "Ded Home Mort" worksheet (which panel will depend when your loan originated).

You may need to override a few other fields in Part 2, since it appears TT is adding up the interest from the two loans incorrectly (at least in my case).

[dingo803]

Ah ok.  I think that capability is only in the desktop version and I am using online.  

I've done the whole spreadsheet outside turbotax from Pub 936, so I have all the correct numbers.  Just no way to enter them

I think I'll wait another week for an online fix, then either download desktop version and re-enter everything, or do paper taxes

Josh

[2204Beau]

I am still having problems with this.  Sold a home and bought a new one, so have two 1098 forms.  It has lowered my home mortgage interest expense by half compared to last year.  New home mortgage is over $750,000 and more than previous home.  It does not make sense that the mortgage interest would be so low.

[dingo803]

Does anyone know whether the worksheet gets filed, or is just for our records?  If just for our records, I could do the worksheet offline, and calculate some false values that result in the appropriate deduction.  Then I would have my (offline) worksheet for any future audit.

But if the worksheet is included, then of course this doesn't work, because it would have incorrect values in it.

[Nevada707]

TurboTax Home & Business has corrected the "can't 2/17 file yet" worksheet error, so I can now print and file.  That's the good news.  Bad news: TurboTax continues to calculate our mortgage interest deduction incorrectly.  Was able to correct our numbers on Schedule A using advice from this blog.  Thanks!

Received a TurboTax email today (2/26/2022):  Dear TurboTax customer,   Thank you for being patient while we investigate your issue.  We’re still working on a solution and we’ll send you an email once a fix is in place.  Thank you for being a TurboTax customer.   Sincerely,  TurboTax

"and well send" ??  Apparently their spelling skills are on par with their ability to calculate taxes.  Or, I need to search in a nearby well for a magic solution.  Great!  Got another big warm fuzzy feeling from that email.

[FixMortgageSheet]

Ok can we get an update on this??? Have heard nothing from TurboTax other than “we’re working it”, that not enough… you have thousands of customers who are paying to use your software, thousands of customers that wanted their refunds early and probably many who NEED that money… take this seriously before you have a media fiasco on your hands, several people have already reported that they’ve switched to other software that do not have this problem. If you’re not going to fix this issue at least tell us that so we can take our business somewhere else.

And please tell your customer support to stop gas lighting people and telling them this issue is “IRS related”. I work for the IRS and that’s just not true lol, it’s 100% an issue with your software. Fix it or tell us to stop wasting our time and go somewhere else. You’re impacting/blocking thousands of people from being able to submit their taxes 2 months after filing season opened. Get your **bleep** together.

[hhinman2]

Problem is now fixed. Bring up TurboTax and download the latest update. I just got through this error and filed. 🙂

[FixMortgageSheet]

Got it! Thank you for that update, I guess my confusion comes from the fact that I just got an email from TT at noon today regarding this issue:

“Dear TurboTax customer,
Thank you for being patient while we investigate your issue.
Rest assured, we're working tirelessly on a solution and will email you when we have more information.
Thank you for being a TurboTax customer.”

Wondering if they fixed part of the issue for some scenarios, but not all. Shame on us all for not being able to read their incompetent minds I guess.

🤷🏽‍

[quezroc]

@jgackson Thanks so much for the post and the example. ( I’m dealing with a new house bought and the old one sold with just 3 months that I held both mortgages.) So much better and clearer  than the IRS or TT!!

[DalePickle]

Hi - Have people confirmed that TurboTax Online is actually performing the calculation correctly?  I am not seeing the error reported before, however TurboTax seems to be completely mangling the calculation of my deduction.

My scenario should be pretty straightforward - sold one house, bought another with a one month overlap when I owned both. My guess is there is a problem in the way TT is calculating the average mortgage balances. Ugh.

Is there anyway to see the worksheet in the Online version so I can see what TT is doing?

[lh64]

I'm using online and it's still wrong (it's adding mortgages, not averaging).  My calculation should be simple, as well.  Just did a refinance.  To view the worksheet, go to Print Center (lower left)>Press view returns>Select Federal and make sure you check "Include government worksheets".