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phimaya
New Member

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

I have been audited for not reducing my mortgage interest deduction since my mortgage was over the limit of $1 million.  This year turbo tax didn't ask me to reduce the interest reported.  I own my home in California.
16 Replies
Cynthiad66
Expert Alumni

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

Here is how you handle that mortgage over $750,000.00.

 

First, adjust your total mortgage down to the $750,000.00.  Also, adjust the interest down to the amount that would apply to $750,000.00 loan amount.

 

How much mortgage interest can you deduct in 2020? For the 2020 tax year, the mortgage interest deduction limit is $750,000, which means homeowners can deduct the interest paid on up to $750,000 in mortgage debt.

 

The IRS lets you deduct your mortgage interest, but only if you itemize deductions. You can't deduct the principal (the borrowed money you're paying back).

In addition to itemizing, these conditions must be met for mortgage interest to be deductible:

  • The loan is secured, which means the lender has some kind of guarantee of payment, usually in the form of property. If a borrower defaults on payments, the lender can seize the property that’s securing the loan. If you’re buying or refinancing a home, especially if it’s your first home, the loan is usually secured by the home you’re buying or refinancing.
  • The home with the secured loan must have sleeping, cooking, and toilet facilities.
  • The debt can’t exceed $750,000 (or $1,000,000 if the loan was taken before December 16, 2017) in order to get the full deduction.
  • You or someone on your tax return must have signed or co-signed the loan.
  • If you rented out the home, you must have used the home more than 14 days during the tax year or 10% of the number of days you rented it out, whichever is greater.

Mortgage interest is usually reported on Form 1098, Mortgage Interest Statement. After you enter your 1098 in TurboTax, we'll ask a series of follow-up questions to make sure you're qualified to take the deduction.

For tax years 2018 through 2025, you can only deduct the interest from the amount of your loan that was used to buy, build, or improve the home that it’s secured by.

If you’ve ever used part of this loan to pay for things other than this home, you cannot deduct the interest from that amount of the loan, even if the transaction didn’t take place this year.

Don’t worry, we’ll help figure out what amount of interest you can deduct.

Examples of common ways you might have used this money not on your home include:

  • Making a down payment on a different home
  • Funding improvements on a different home
  • Making a payment on a different loan or debt
  • Having miscellaneous large purchases

Example: John took out a home equity line of credit on his home on Tuberose Street for $40,000. He used $25,000 to remodel his kitchen and bathrooms in his Tuberose Street home, and $15,000 as a down payment on a second house on Snowdrop Lane. He can only deduct the interest he paid on $25,000 he used to improve his Tuberose Street home.

 

You cannot claim a mortgage interest deduction unless you itemize your deductions. This requires you to use Form 1040 to file your taxes, and Schedule A to report your itemized expenses. The interest payments and points you pay are combined with all other deductions you claim on Schedule A; the total of which reduces your income that is subject to tax on the second page of your tax return.

First, adjust your total mortgage down to the $750,000.00.  Also, adjust the interest down to the amount that would apply to $750,000.00 loan amount.

 

How much mortgage interest can you deduct in 2020? For the 2020 tax year, the mortgage interest deduction limit is $750,000, which means homeowners can deduct the interest paid on up to $750,000 in mortgage debt.

 

The IRS lets you deduct your mortgage interest, but only if you itemize deductions. You can't deduct the principal (the borrowed money you're paying back).

In addition to itemizing, these conditions must be met for mortgage interest to be deductible:

  • The loan is secured, which means the lender has some kind of guarantee of payment, usually in the form of property. If a borrower defaults on payments, the lender can seize the property that’s securing the loan. If you’re buying or refinancing a home, especially if it’s your first home, the loan is usually secured by the home you’re buying or refinancing.
  • The home with the secured loan must have sleeping, cooking, and toilet facilities.
  • The debt can’t exceed $750,000 (or $1,000,000 if the loan was taken before December 16, 2017) in order to get the full deduction.
  • You or someone on your tax return must have signed or co-signed the loan.
  • If you rented out the home, you must have used the home more than 14 days during the tax year or 10% of the number of days you rented it out, whichever is greater.

Mortgage interest is usually reported on Form 1098, Mortgage Interest Statement. After you enter your 1098 in TurboTax, we'll ask a series of follow-up questions to make sure you're qualified to take the deduction.

For tax years 2018 through 2025, you can only deduct the interest from the amount of your loan that was used to buy, build, or improve the home that it’s secured by.

If you’ve ever used part of this loan to pay for things other than this home, you cannot deduct the interest from that amount of the loan, even if the transaction didn’t take place this year.

Don’t worry, we’ll help figure out what amount of interest you can deduct.

Examples of common ways you might have used this money not on your home include:

  • Making a down payment on a different home
  • Funding improvements on a different home
  • Making a payment on a different loan or debt
  • Having miscellaneous large purchases

Example: John took out a home equity line of credit on his home on Tuberose Street for $40,000. He used $25,000 to remodel his kitchen and bathrooms in his Tuberose Street home, and $15,000 as a down payment on a second house on Snowdrop Lane. He can only deduct the interest he paid on $25,000 he used to improve his Tuberose Street home.

 

You cannot claim a mortgage interest deduction unless you itemize your deductions. This requires you to use Form 1040 to file your taxes, and Schedule A to report your itemized expenses. The interest payments and points you pay are combined with all other deductions you claim on Schedule A; the total of which reduces your income that is subject to tax on the second page of your tax return.

fpinajr
New Member

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

I entered the full value of my interest and points but for some reason I am not getting the full credit.  How do you correct that on the Online Version. There is no forms view.

Cynthiad66
Expert Alumni

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

Some TurboTax customers are experiencing an issue with their Home Mortgage Average Balance. This can cause in the the Home Mortgage Interest to be incorrectly limited.

 

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

Craig2018
Level 3

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

There is a bug if you refinanced in 2020. If you had a $600,000 loan and refinanced it for another $600,000. TurboTax says you have $1,200,000 in debt which then limits your deduction therefore reducing your refund from the IRS by thousands of dollars.

 

THIS BUG STILL EXISTS FROM LAST YEAR.

 

HOW MANY PEOPLE DIDN'T GET THEIR FULL REFUND LAST YEAR!? CLASS ACTION LAWSUIT!!!

LinaJ2020
Expert Alumni

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

If you have more than one 1098 form, I will recommend you to combine all 1098 forms and enter as one.  I am attaching a TurboTax link for the instructions how to do claim your mortgage interests.  Click here:

 

Multiple Form 1098s

 

For tax years prior to 2018, your mortgage interest deduction is generally limited if all mortgages used to buy, construct, or improve your first home (and second home if applicable) total more than $1 million ($500,000 if you use married filing separately status). Beginning in 2018, this limit is lowered to $750,000.  For more information about the mortgage interest deductions, click here: Mortgage Interest deduction

 

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Craig2018
Level 3

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

This is lying to the IRS. Why would I do that? What would I put as a lender name since the lender is now two lenders instead of one? 

 

There is no need to combine multiple 1098s, the software should be able to handle a simple refinance. This is the same problem as last year. Is this going to be fixed this year so users don't need to do a workaround? There is no reason for a workaround, that is just bad software design. 

JoannaB2
Expert Alumni

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

Some TurboTax customers are experiencing an issue with their home mortgage average balance. This can cause the home mortgage interest to be incorrectly limited.  This may be affecting your tax return.

 

Please sign up for email notifications when an update related to this issue is available here.

 

See also this TurboTax Help.

 

>

TaxesinVA
Returning Member

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

Adding the 1098s together doesn't solve when you bought/sold property in 2020. 

 

I have four 1098s. 

Property 1: Refinanced in early 2020, so have two 1098s

Property 2: Bought new property and sold property 1. Loan was sold, so have two 1098s for this property too. 

 

I can add the two 1098s for the specific properties, but the two groups shouldn't be added together. And Turbotax is then adding the mortgage balances of the two loans together and limiting them incorrectly. 

 

Advice on how to fix this issue?

JohnB5677
Expert Alumni

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

Do not add them together.

 

The IRS instructions for completing Form 1098 state that box 2 should be the amount of principal outstanding on the mortgage as of January 1, 2021.  If the loan was no longer being serviced by that company, there would be no outstanding principal on that mortgage and the amount should be "0".  

 

Entering '0' into box 2 in your tax return is the correct way to handle a loan that has been closed out.

 

In your case you should have 3 zero's.

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TaxesinVA
Returning Member

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

But that still doesn't work. Because the advice to handle multiple 1098s as it relates to the average balance to limit the deduction is to add the 1098s. 

 

Property 1: Two 1098s. Average mortgage balance is $760,000 for the year. Total interest of $17k.

Property 2: Two 1098s. Average mortgage balance is $1,100,000 for the year. Total interest of $13k. 

 

I've added the two 1098s together for each property since they are "refinances" per the Turbotax instructions, but the mortgage limiting is still treating it as my average balance for 2020 was almost $1.9M, instead of the two different amounts. 

My interest should be $17k*(750000/760000)+$13k*(750000/1100000) for a total of approximately $25600. Turbotax is saying my deductible mortgage interest is only $12,000, which would be $30k* (750000/18600000).

DaveF1006
Expert Alumni

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

 
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Craig2018
Level 3

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

@DaveF1006 How do I indicate your post was UNHELPFUL and nothing has been accomplished by yourself?

JamesG1
Expert Alumni

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

Some TurboTax customers are experiencing an issue with their home mortgage average balance. This can cause the home mortgage interest to be incorrectly limited.  This may be affecting your tax return.

 

Please sign up for email notifications when an update related to this issue is available.

 

See this TurboTax Help.

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Craig2018
Level 3

This year, I am not being asked on TurboTax to reduce my mortgage interest since my loan is over $1 million. I have been audited for this before.

@JamesG1 Is there going to be an update? It has been 12 months since this bug was reported...why should we believe you when you can't even respond to your customers? The replies from TT are either blank or miss the point altogether...are you politicians?

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