I spent several hours on the phone with TurboTax last night, and it's a bug (that's been in place since 2019) and they aren't sure when they are going to fix it. They are calling me back tonight.
The problem is that it is ADDING all of your mortgages together, instead of averaginng them.
Say your original home loan was $400,000 when you refianced it. Then you refinanced for $450,000. Then you refinanced again (like we did) at a lower rate for $450,000. Your average should be something like $450,000, but instead TurboTax is adding together all your mortgages and it comes out to 1.3 million in mortgages. It isn't recognizing that you have paid it off. You can see these errors in the "form" view of Turbo Tax.
You can only get credit on the interest paid on $1,000,000, so anything over that is lopped off. Say you were supposed to get $15,000 interest credit on your $450,000 home, but if you look through the form view you will see it's actually limiting it to $9552 because of it beliving you have 1.3 million and lopping it off at the 1 million max.
I was wondering why my taxes were so high and it wasn't until I got to the "California" state version that it clearly stated my mortgage debt was 1.3 million so I went back and tried to figure out where this is going wrong. The error seems to come into play when you enter more than one refinanced mortgage. Turbo Tax is ignoring the "I paid this off" selection.
See the error on the forms:
Ded Home Mort
Tax & Int Wks
Home Int Wkst (you should have 3+ of these)
There are a lot of people experiencing this error but it hasn't been fixed. The earliest threads I see about it are from 2019.
Thanks for the feedback. I just got it resolved. Turbo Tax Cust Svc connect me w/ a live CPA to help and they walk you through how to workaround the software issue.
Basically, put outstanding principal to $0 for all your past loans and only enter it for the current loans. That will bypass Turbo Tax adding all your mortgages' principles both past and present which can put you over the $1M mark and default you to standard deduction.
Hope this helps you and others!
FYI, while this move suppresses the error it creates other possible issues as it ignores the fact that the average (arithmetic mean) balance of the mortgages (which is what the IRS requires) is not being reported. Rather, you are just selecting one essentially arbitrarily. One one hand, this will not change the end result deductible mortgage interest (likely your goal) but TT should fix this so you don't have to fudge the data to work around the code error.
See several recent threads and posts I have posted in (you can click on my username I believe) - there is an entire community of people experiencing this issue and I would suggest waiting to file (if able) until a definitive resolution is offered. Just my $0.02.