Refinanced Mortgage Original date not being utilized by Turbo Tax

[JCcoach44]

Hello, my original mortgage was taken out in 2017 and we refinanced in 2021.  The mortgage is over 1 million dollars.  Turbo tax is not recognizing the original loan date (even though it asks me the question of is this a refinanced loan) and it is limiting me to 750,000 and also it is not asking me about starting principle balance and ending principle balance for 2022 so it can get an average year mortgage balance.  Need help!!  

It should limit to 1 million and also calculate the average mortgage balance for the year.  Seems so simple and common, can anyone help?????

[PatriciaV]

Did you enter the 2017 date as the "mortgage origination date" on the Form 1098 entry? This is the date TurboTax uses to categorize the loan balance.

For most mortgage interest situations, TurboTax calculates the correct amount of deductible interest using the first/last balance method. If you have calculated a different amount using the instructions from IRS Pub 936 Part II, Limits on Home Mortgage Interest Deduction, you may enter this during the interview for Form 1098.

Click Done at the bottom of the 1098 Summary list and answer all questions until you come to the page "Your Mortgage Interest is limited." TurboTax provides a box on this page where can enter the deductible interest based on your calculations. No other overrides are necessary. Be sure to save your calculations with your other tax paperwork.

[JCcoach44]

Thank you but the bank has the refinance date as the date of origination on my 1098 form.  I don’t think I can change information on the tax document.  I did get the question about “is this a refinance” and I answered yes but there were no follow up questions asked by turbo tax to get the correct information.  Are you saying that turbo tax customers should enter different information than what is on their tax forms? Thank you for your help.  

[DMarkM1]

Yes, a refinance takes on characteristics of the original loan if the refi loan amount does not exceed the payoff balance on the original loan.  Otherwise it's a new loan with the limits applied for the new date.  

Typically it is best to start from scratch by deleting all 1098s you have entered.  Then return to the "Mortgage Interest..." topic and reenter the form information.  

1. Enter the oldest loan first.  
2. Enter the form information as depicted on your form 1098
3. Key follow on questions/answers are:
4. Is the 1098 the most recent for your loan?  Yes
5. The loan is neither a HELOC or REFI
6. Add Another 1098
7. Enter the form information as depicted on your form 1098
8. Key follow on questions/answers are:
9. Is the 1098 the most recent for your loan?  Yes
10. This Loan is a REFI
11. Did you use the proceeds for anything other than paying off the existing loan?  Assuming NO
12. Continue
13. You should now see that the loan entries "Need Review"
14. Edit each
15. Does the loan qualify for the pre 2017 limit?  YES assuming proceeds only used to payoff existing loan 
16. Enter the payoff/date information for the first loan
17. Enter the end of year loan balance for the current loan

TurboTax should show there is a limitation and give you an opportunity to enter your calculated amount of interest deduction.  

If you wish to calculate yourself.

Add box 2 amount of first loan to end of year balance on second loan and divide by 2 = average loan balance.  If $1M is your limit (all proceeds used to payoff 1st loan) then $1m / average loan balance = ratio.  Ratio x total interest paid from boxes 1 of 1098 yields mortgage interest deduction.

If $750K is your limit then $750K / loan balance = ratio to use. 

Additional information:

The copy of the forms 1098 you receive are to help you enter the information into TurboTax to arrive at the tax for you.   The forms 1098 are not transmitted as part of your tax filing.  Your entries using the form 1098 are only to determine the amount of mortgage interest deduction and real estate tax deduction on Schedule A.  There are some situations that TurboTax does not handle with regards to the mortgage interest deduction being limited.  If TurboTax determines the interest deduction is limited you are given the opportunity to make the calculations yourself and enter the new amount as an adjustment. 

Therefore if you can use the form 1098 entries to help TurboTax help you make the calculation then that will work as only the Schedule A is transmitted and how you got to that number is for your records only, whether TurboTax or you make those calculations.