Refinance of a loan that was originally started in 2017, but refinanced in 2019 and 2021

[avinash82]

My original mortgage was taken on my primary residence in 2017. I refinanced the loan in 2019, and then again in March 2021. I have the Mac downloaded version of Turbotax Premier, and I was wondering what is the right way to get the correct deduction in my case. Which of the following 2 options is the right approach, or if there is a different recommended approach, please advise.

(1). Add up both interest values from box (1) of the 2 1098 forms and enter that in the Box 1 in Turbotax. Enter the Outstanding mortgage principal as the amount on Jan 1 for the active mortgage on Jan 1 2021 (this was also a refinanced mortgage; not the original mortgage). Enter the mortgage origination date as Jan 6 2017 (the original mortgage origination date; not the origination date of refinanced mortgage of 2019 or 2021). On the question "Is the 1098 you're working on now the most recent for your loan?", what should I answer? If I answer "Yes", the deduction amount is much lower than that if I entered "No". Why is that?

(2). Enter 2 separate 1098’s. For the first 1098, enter the Outstanding mortgage principal as $1. For the second 1098, enter the right outstanding mortgage principal as listed in that 1098. Select the second one as the “latest” 1098. After entering both of the 1098, the deduction being given is different from what was provided for option (1) above. Then there is a question asked where we need to enter the outstanding loan balance on Jan 1 2022. The question says:

“What was the outstanding loan balance on Jan 1 2022? If you paid this off in 2021, enter the balance on the day you paid it off.”

What value should I enter for the older loan that was refinanced here? It is auto-filled to $1 (probably from the Outstanding mortgage principal I filled in earlier). Should this value be the full loan value that was refinanced? If I enter that, the deduction falls.

What is the correct way to do this?

[AliciaP1]

Yes to option 1!  Following these steps specifically will input all the correct information without any possibility of duplicating amounts:

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 info:

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 insurance, 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.

[avinash82]

Thanks for the confirmation. I still have the question:

On the question "Is the 1098 you're working on now the most recent for your loan?", what should I answer? If I answer "Yes", the deduction amount is much lower than that if I entered "No". Why is that?

[RaifH]

You want to answer "Yes" to that question. By answering "No" you are telling TurboTax that you did not carry the loan for the entire year which is affecting the system's calculation of the average loan balance. 

Mortgage interest is not fully deductible for loan amounts of over $1,000,000 in 2017 and over $750,000 for loan amounts after that. By answering "Yes," it correctly calculates only the portion that is deductible based on the age of the loan and the limit that was in place for that year. I imagine if you answer "No" you would not be able to file because it would determine that another 1098 is needed and cause an error.