TurboTax is incorrectly combining mortgage loan principal from multiple 1098 forms due to a mortgage service transfer (California). How do I fix this?

[Maryland123]

@Bostondoc84 

same issue for us.  I spent almost an hour on the phone this morning with TT and one of their CPAs and she said it is a known problem and they are you working to fix it, and to try again in 2 weeks.  

What I don’t get is how there was never a fix last year - people refinance all the time and mortgage are frequently sold 

All the fixes above says to delete and then re-enter and after clicking done we’ll get the screen that asks if the situation applies to us - I don’t get that and was able to show the TT CPA it didn’t come up.  

I tried it out in H&R Block and it worked correctly there but I don’t like how I have to enter in my state and local tax rate manually so I’m not sure what we are going to do.  

[DianeW777]

After testing, this does not appear to be a bug at this time. It's important to answer the questions appropriately for TurboTax to recognize that one loan is a refinance and the other was the original loan.  If you go through the questions carefully, you should obtain the correct results.  (see the image below for the specific page)

• Helpful link: How to handle multiple Forms 1098

[Maryland123]

@DianeW777 

I was on the regular deluxe version and upgraded to the live deluxe so I could call in and talk to a cpa.   We walked thru the steps together and she validated it wasn’t working.  She had full access to my file and screen and advised there was a bug.   This was yesterday morning. 

Yesterday evening I cleared everything and selected the live deluxe version to start with, and this time it calculates everything correctly. 

So either it was fixed between yesterday morning and evening or the live deluxe version is calculating correctly and the regular deluxe version is not 

[Bostondoc84]

@DianeW777 @Maryland123 

Hello, and thanks for the the reply.
 
Respectfully, the fact that multiple users have reported the same issue after spending (as I have) hours with TT staff by phone and video chat suggests something may be up or, at a bare minimum, that the questions are reproducibly eliciting incorrect user input (also a problem). My situation, a 2020 refinance of a 2016 original mortgage between $750k and $1M, seems like it should be straightforward to handle though it has some tax implication subtleties in light of TCJA. The video chat person was unable to find any data entry errors, so perhaps it would be useful to walk through it here:

A. First 1098 (lender A, original 2016 loan which was in force until September)
— Data from 1098 entered verbatim from form received (mortgage interest, origination date in 2016 pre TCJA, principal as of 1/1/2020, box 7 checked)

— Q: Did you pay points? A: No.

— Q: Was this loan paid off or refinanced with a different lender in 2020? A: YES.

— Q: Is this loan a home equity line of credit or a loan you've ever refinanced? A: No, this is the original loan I used to buy or build my home. **This is a somewhat oddly worded question. I selected “No" because this is indeed the original loan from 2016. But, depending on how one reads it, I suppose one could interpret it as “refinanced” in the sense that it was paid off and replaced with a new loan.**

At this point, the calculated mortgage interest deduction TT comes up with looks correct. So we move to the second 1098….

B. Second 1098 (Lender B, September 2020 refinance)

— Data from 1098 again entered verbatim (mortgage interest, origination date in 2020, outstanding mortgage principal as of loan origination in Sept 2020, box 7 checked) ** As soon as I enter this data and click continue, TT cuts my mortgage interest deduction in half and switches me to the standard deduction. My expected refund decreases dramatically, and a tax due is actually generated.) **

— Q: Did you pay points? A: No.

— Q: Was this loan paid off or refinanced with a different lender in 2020? A: NO. **This loan, the new one, was not paid off or refinance. **

— Q: Is this loan a home equity line of credit or a loan you've ever refinanced? A1: YES. A2: “A mortgage loan I’ve refinanced” A3: No (have never pulled out cash)

I now get the "Thanks, we got all your mortgage and property (real estate) tax info” screen. Clicking through, I next get the "Let's wrap up your mortgage interest deduction” screen. 

A. Review of first loan (lender A)

— Q: Enter your loan balance as of January 1, 2021, or the final principal balance if you paid off this loan in 2020. A: Entered the final principal amount prior to payoff per Lender A documentation.

— Q: Enter the date you made your final payment, or leave blank if you haven’t paid off your loan. A: Entered the date of funds disbursement from the refinance when the payoff was complete per Lender B closing documents.

B. Review of second loan (lender B)

— Q: Enter your loan balance as of January 1, 2021, or the final principal balance if you paid off this loan in 2020. A: Entered the loan principal remaining after December 2020 payment.

— Q: Enter the date you made your final payment, or leave blank if you haven’t paid off your loan. A: Left blank

After completing the review, TT still thinks my deductible mortgage interest is about half of the actual mortgage interest. Accordingly, it suggests the standard deduction. This behavior is suggests TT thinks we actually have double the mortgage debt we actually do, such that only ~half is deductible. In line with this hypothesis, If I go back and change the “outstanding mortgage principal” for Loan B to “$0”, the deductible mortgage interest now correctly reflects both 1098s. I think this should generate a Schedule A with the right numbers on it, but I would prefer for it to be handled correctly. I have read IRS Publication 936 (https://www.irs.gov/pub/irs-pdf/p936.pdf) in some detail and it confirms that a refinance of pre-TCJA mortgage debt between $750k and $1M remains deductible ("Refinanced home acquisition debt. Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing.")

I would be happy to hear what, if anything, I have done wrong here but am at a loss. Possibly this is some version-dependent issue as another user has proposed? I may next try “upgrading” to TT Live Deluxe and see what happens?

Thanks!

[samrom90]

@DianeW777 

It's concerning that you're insisting that we lie and call it a "refinance" when the software itself says that when a lender sells the servicing to another lender that this does not qualify as a refinance.

[samrom90]

I closed on a new home on 30 June 2020. The original lender sold the mortgage to the second lender and the acquisition date is 1 Sept 2020. I received two 1098s. Even after going through and answering the follow-on questions that have been quoted above (which didn't exist until this morning, since I spent two hours on the phone with TT yesterday without any solution), TT continues to force the addition of the two principals together to be in excess of $750,000. I would be better off if I simply didn't include the 1098 from the first lender; in fact my return would actually be nearly $1,000 more. Of course, I don't like to play around with the IRS and would prefer for my records to be accurate.

TT is going to be swamped with this kind of nonsense given how much people bought and refinanced this year if they can't give us the option to override their forcing us over the $750,000 limit.

[DianeW777]

We are aware of this experience and thank you for reporting it here. You have provided great detail about your situation and we appreciate your information, please watch for any updates. I agree, the fact that a mortgage was sold to another lender does not mean there was a refinance and should not be treated as one. 

[Allenusc]

This is a known issue since last year (2019 tax year).

This is a really simple bug fix, however, for whatever reason, TurboTax just refuse to fix this simple bug.

What is the resistance?  TurboTax?

Get it fixed by end of today!

[JoannaB2]

Yes, you may claim mortgage interest deduction regardless of the number of lenders as long as the loan does not exceed $750,000 for married filing joint ($350,000 for single filers). The home mortgage loan must be secured by the property to qualify for the deduction. You may try the following steps to enter deductible home mortgage interest:

1. Login to Turbo Tax.
2. Under Federal Taxes, in Deduction and Credit tab, click "I'll choose what I work on".
3. Under " Your 2020 Deduction and Credit", click update or start next to Mortgage Interest, Refinancing, and Insurance.
4. Under " Home Loan deduction summary" click edit  and enter the lender's information, one at a time.
5. Click continue until you get to the screen " Is this loan secured by a property of yours?" 
6. Click Done.
7. The next screen is a question " Do any of the situation apply to you?". Your answer here will determine if your loan exceeded the allowed home mortgage loan amount.

See,can i deduct my mortgage interest?, for additional information.

[Maryland123]

@JoannaB2 

The question in step 7 that you listed does not come up 

This was confirmed by one of your CPAs yesterday morning.  We went step by step as I shared my screen.  

[Bostondoc84]

@JoannaB2

@Maryland123 

Same experience here- using TT online “self employed”. I also went through this with a TurboTax employee via video chat who was also not able to get the screen to show up even after completely removing all 1098s and starting over.

[MattB]

@JoannaB2 

I have input the information from my 1098's correctly and answered the follow-up prompts correctly, including provided the last payment date for each loan, but the software continues to incorrectly add the loan balances from each 1098 together instead of taking an average balance over the year. I have spent about 4 hours on the phone with TT support documenting the issue and confirming that I input everything correctly.

This software error still exists and has not been resolved as of the software updates provided this morning. I am using TT Deluxe (Desktop Mac version).

Please also check the multiple other threads on this same topic for additional info from other users. In my case, this TT software error would have cost me about $2,000 if I had not checked the TT calculations and found this software error. Imagine how many TT users are going to overpay this year if they are not actively checking TT's calculations and TT doesn't fix this before they file. Considering how many people refinanced in 2020, TT could have huge financial exposure to this error if it is not fixed immediately.

[samrom90]

@JoannaB2 The steps you described don't exist on TurboTax Online.

"exceed $750,000 for married filing joint ($350,000 for single filers)"

Also wow, that is INCORRECT. Single people don't have a LOWER mortgage threshold. Single filers and married filing jointly is $750,000. It's married filing separately that have the $375,000 limit (note, not $350,000).

The more I deal with TurboTax "experts" the more I realize they are not experts on the tax code.

[JoannaB2]

Good morning,

Yes, that was the correct amount. It was a typo and I apologized.  Thank you very much.

Truly,

Joanna Buss

[BMahoney44]

I just gave this a try, and I am still not seeing it calculate correctly. Can someone confirm if a fix was made?