Will there be a fix for Turbo Tax Pub 936 Mortgage Deduction Bug for Tax Year 2021?

[rjthomp]

The software incorrectly fills out the Pub 936 mortgage deduction worksheet when user has two 1098 forms for mortgage interest, one for mortgage acquired before 2017 (but after 1987) for < $1M, and one for a mortgage acquired after 2017 with principal > $750K  (in the case where home is sold and a new home is purchased).  It sums both principal values under “mortgages acquired after 2017”.  When the new, more expensive home is purchased late in the year, and little interest is paid, it erroneously scales the fully allowable mortgage interest from the mortgage acquired before 2017 by the factor of the new 750K mortgage deduction limit over the current mortgage principal.  

Even worse, “completecheck” notices this error but gets caught in an endless loop because it points to the top of the Pub 936 worksheet (where names are) as the error, and no fix to names solves the problem. So turbotax never exits completecheck and you cannot file.

[AliciaP1]

The "Outstanding Mortgage Principle" amount for the 1098 on the sold house should be $0.  This way, when both 1098s are "added" the outstanding balance is correctly shown as the outstanding balance on the current mortgage.

[edwcarney]

The Box 2 amount is required (by the IRS) to be the outstanding mortgage principal on 1 January 2021. TurboTax will not allow the amount to be $0.00 in the Box 2 entry item for the Form 1098.

[JillS56]

There is no known bug for Mortgage Deduction for Tax Year 2021.  Depending on your situation there are a couple of ways to handle this.   

1. If you took the mortgage out during 2021 the amount in Box 2 should be 0 and the date of the mortgage needs to be in Box 3.
2. If you sold a home and paid off the mortgage and purchased a new mortgage Box 2 for the mortgage you sold should have the balance as of 1/1/2021 in Box 2 and the loan date in Box 3.
3. Box 2 amount on your new home purchase should be blank because there was no balance on this loan as of 1/1/2021. You should leave that box 2 blank in TurboTax and be sure to enter the mortgage origination date in box 3.
4. If you have a 1098 and you still have the loan, you need to put the balance as of 1/1/2021 in Box 2.   If your 1098 is blank you will want to contact your mortgage company and ask for a corrected 1098 or get the amount that should be in Box 2.  You may be able to determine this amount if you can log into your mortgage account online.  

[yuhsink]

This is indeed a bug. The solution suggested below seems to be totally wrong when you enter 0 for box 2. That would just make your entire interest deductible which shouldn't be the case if the loan amount is > 750k 

[yuhsink]

1. If you sold a home and paid off the mortgage and purchased a new mortgage Box 2 for the mortgage you sold should have the balance as of 1/1/2021 in Box 2 and the loan date in Box 3.

This doesn't seem to be correct imo. Let's say you have 2 loans

Old one: principal 750k interest 10k  (close in July)

New one (open in July) principal 1.5M, interest 20k 

I believe the correct math here should be 10k + 20k * 750k/1.5m = 20k 

but if you type 0 for box 2 you will end up getting 30k deductible interest which I don't know if IRS would like to see that 

[yuhsink]

> The "Outstanding Mortgage Principle" amount for the 1098 on the sold house should be $0.  This way, when both 1098s are "added" the outstanding balance is correctly shown as the outstanding balance on the current mortgage.

Why? If both loans have different amounts, how would this even work? I can give you an example how this would go wrong. 

Let's say the principal of your old loan is 3M and you paid $100k for interest 

The principal of your new loan is 750k 

If you do what you just said, the 100K interest you paid would all become eligible for deduction which is wrong. 

[yuhsink]

TLDR

THIS IS A BUG

[jxman]

I agree.  Any updates?  I have posed a similar question on the thread below.  In my case I re-fi'ed in Oct and payed down my mortgage under 750k  (was over with the previous mortgage).  Turbo Tax is only taking the current balance and allowing me to deduct my all the interest paid for all my previous mortgages.  Anyone had any luck or insight?

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/multiple-1098-due-to-refinance-w...

[AmyC]

The worksheets are not a part of the return. You can make one correct entry instead. Your goal is to file an accurate return.

See About Publication 936, Home Mortgage Interest Deduction part II on page 9. Use  page 12 to combine all loans. Only one table, table 1, is used for all of your loans in one place. The instructions to go through line by line are after the table. There are examples throughout to help you. 

Page 13 has mixed-use mortgages.

In addition, we have found many people are not using the information in the pop-up window explaining how to work with some situations. In the program, there is a pop-up box which explains to use the original date for the refinanced loan to get the grandfather rule. Otherwise, you will not get the deduction. This is only true if the refinanced debt does not exceed the debt balance at the time of refinancing. 

@jxman

[jxman]

I agree, but I think the Turbo Tax software is misleading with how it does its calculations and will have a lot of folk either filing incorrect returns.  Either tell users to review Pub 936 and manually enter the one entry or provide a programatic way to enter this data  using the details from 936.  I am seeing this as a fail from the software and a potential audit risk.