Refinanced mortgage 1098 messing up deduction from original loan

[samrom90]

Hi @JohnB5677, I posed these same questions to your colleague @ReneeM7122  who hasn't answered. I hope you can help me out.

I have two questions

1. If I enter only one 1098, which lender do I put in as the lender?

2. Does TurboTax's calculation guarantee and its max refund guarantee still cover this if TurboTax is forcing its customers to do their own calculations?

[robot9]

The workaround suggested by JohnB5677 does not allow me to deduct entire mortgage interest originated in 2015 (before $750,000 limit applied). The workaround definitely can increase our itemized deduction; however, it is still not right for partially deducting the mortgage interest amount prior to $750,000 limit. Do we have an ETA for TurboTax resolving this issue?

[ReneeM7122]

It sounds like the program isn't allowing you to deduct the entire mortgage interest that originated in 2015 because of a technicality. It could be the order in which they were entered (the original should be first),or it could be another reason that is difficult to ascertain without looking at your actual return.  There isn't an ETA in resolving the problem.  So far the following instructions apply:

If you have multiple 1098 mortgage forms, you’ll enter them one at a time. After going through the steps with the first one, you can add a lender when you get to the Mortgage deduction summary screen. (In the case of a refinance, it's best to enter the 1098 from your original loan before the 1098 from your refinance.)

But, if they're both from the same lender, and one of them has the “Corrected” checkbox marked at the top, enter the corrected 1098 and discard or shred the other one.

How do I handle multiple 1098 mortgage forms?

If you have multiple 1098 mortgage forms, you’ll enter them one at a time. After going through the steps with the first one, you can add a lender when you get to the Mortgage deduction summary screen. (In the case of a refinance, it's best to enter the 1098 from your original loan before the 1098 from your refinance.)

But, if they're both from the same lender, and one of them has the “Corrected” checkbox marked at the top, enter the corrected 1098 and discard or shred the other one.

What do I do if I have multiple 1098s from refinancing my home debt?

If your total home debt is under $375,000 ($250,000 for married filing separate) there is nothing new for you to do in 2020. Enter each 1098 as you normally would.

Home Debt Over $375,000

Under tax law, you are limited on the amount of home interest you can deduct. The limit is based on the loan amount and date of the origination of debt. We want to make sure we calculate this correctly for you. 

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.

It might be helpful to request an offline review if the issue persists.

[robot9]

Tried the instruction/workaround by ReneeM7122 that is still not working. The bottom line is that I can get more tax refund if I only entered 1 Form 1098 from my refinanced loan in 2020 than if I entered both Form 1098 (the original loan initiated in 2015 and the refinanced loan in 2020). There is definitely something wrong in TurboTax.

[Craig2018]

Here is the solution to the issue with refinancing and not getting the correct deduction - use H&R Block instead. 

[robot9]

Will TurboTax team release a fix for this issue? 

[JeanneLO]

@robot9

If you're experiencing the issue above please go here to receive email notifications when any updates related to this issue become available.

[rebeccad7]

I'm going to work on this workaround right now (although it doesn't seem right we need to do this), but I see your response says to total all the interest from all your 1098's which I've done. Then it says to use the outstanding mortgage principal (box 2) from your most recent 1098, which I have and that makes sense. But then you say to total all boxes 3, 4, and 5....but 3 is a date, how do I total a date? I'm guessing I use only one of the dates, but should it be from my original loan which originated in 2016 or the most recent refi which was a 2020 date?

[disco_stu]

I'm having the same problem. 2020 was a big year for refi's, so this issue must be affecting a *lot* of people.  The impact is somewhat hidden on worksheets deep inside the return, so I bet a lot of folks aren't even aware of the mistake. Intuit's reply is pretty disappointing.

I'm using a work-around similar to what is mentioned above. To keep things as close to correct as possible, I'm doing the following:

- For one of my 1098's, I'm entering the total interest from all 1098's. I'm listing the outstanding balance (Jan 1) from my first mortgage and the ending principle balance (Dec 31) from my last mortgage. This is basically treating the mortgage as if it were never refinanced. 

- For my other 1098, I'm including lender name, dates, etc, but listing $0 for all principle and interest fields. 

As far as I can tell, this results in the correct final calculation for my case (original loan in 2015, principle greater than $1M).

[caltaxpayer275]

While this may result in the correct deduction amount being applied, the schedules end up all messed up as you're now ignoring the refinanced mortgage. And the problem carries through to the state return where the schedules don't reflect the appropriate info.  This "workaround" is unacceptable.  As another poster has pointed out, 2020 was a record year for refinancings.  This is a major bug. Intuit needs to fix it NOW.

[shd]

Just started our tax return and noticed this bug. Googling it lead me to this thread. Hard to believe there's still no fix inside the software now that it's been more than a month since the thread first started.

I changed the original loan balance to $1 (instead of the number reported in Box 2) and got the right deduction. But this is just wrong and may raise a flag for auditing.

[ReneeM7122]

You are correct, combining the 1098s in the case of a refinance and changing the loan balance to $1 gives you the correct deduction.  This is a workaround, no doubt, but you can have peace of mind regarding audit potential.  Every return is backed by TurboTax 100% accuracy guarantee.

@shd

[calebmil]

Another update and STILL NOT FIXED!  Steps are being made in the right direction but someone still does not understand the fundamental problem on the development team!

Mortgages that are refinanced are held for only part of the year.  To calculate the Average Balance of a loan that was held part of the year:

Definitions

m = # of months the loan was held.  This is finally being calculated close enough to correctly for government work. 

b = final balance at the close of the loan

a = average balance for that loan to be entered on the mortgage interest worksheet to determine total money borrowed against the house.  THIS IS WHAT IS STILL NOT BEING CALCULATED CORRECTLY!

Calculation 

(m/12)*b = a

To calculate total debt, add all average balances for the year.  IT SHOULD NOT BE THAT HARD!!!

FIX THIS!

[ReneeM7122]

You are correct.  It appears that they will not retrofit this section of TurboTax it until after the season ends.  I am aware that some other experts may have heard through the grapevine that there may be an earlier fix, but not to contradict them, I have not heard anything as such.  So to best assist customers, I can share the following that I know and have been informed about:

There is an issue when there is a refinance as well as a loan sold to another lender. 

Currently, TurboTax has instructed us to combine multiple 1098s together.   But if your loan is sold, then you don't have two loans - you have one.  The loan was sold outside of your control and the only thing that changes is the bank to whom you make payments.  So you only use the ORIGINAL 1098 for that entry.

Once you're done with the sold loan portion, go ahead and follow these official steps regarding the refinance:  (you may have already seen this tutorial but it is being re-stated here for those who haven't seen it)

If you have multiple 1098 mortgage forms, you’ll enter them one at a time. After going through the steps with the first one, you can add a lender when you get to the Mortgage deduction summary screen. (In the case of a refinance, it's best to enter the 1098 from your original loan before the 1098 from your refinance.)

But, if they're both from the same lender, and one of them has the “Corrected” checkbox marked at the top, enter the corrected 1098 and discard or shred the other one.

 What do I do if I have multiple 1098s from refinancing my home debt?

If your total home debt is under $375,000 ($250,000 for married filing separate) there is nothing new for you to do in 2020. Enter each 1098 as you normally would.

Home Debt Over $375,000

Under tax law, you are limited on the amount of home interest you can deduct. The limit is based on the loan amount and date of the origination of debt. We want to make sure we calculate this correctly for you. 

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.

What if I have more than two 1098s?

You should combine all of the 1098s directly related to the refinance and enter it as one 1098.  An example of this is if you refinanced two loans into one loan. Any 1098s not directly related to the refinance should get entered separately.

What if I paid points?

Points on Loans Paid Off in 2020: Enter the points on your 1098 you have started and mark you paid off the loan when promoted.

Points on Loans on New Loans: You will want to enter a separate 1098 to cover these points paid. When prompted, enter 0.00 for Boxes 1, 2, 5, and the Property (real estate) taxes box, and checkbox 7, as you’ve already entered the details on your first 1098. For Box 3, add the date in 2020 when the loan originated.

[LawrenceDong]

Do you mean this huge bug will not be fixed in this tax season? 

I cannot believe TurboTax has such a huge bug! This huge bug is impacting lots of home owners who refinanced in 2020.

So disappointed!