turbo tax not properly calculating refi average mortgage balance

I am also interested in a response to this question.  Thank you.

It seems like it may be time to find a new tax preparation option.  From my reading this was an issue last year as well, and it doesn't seem like they care to address it.  This is a pretty big issue...

We are aware of this issue.

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But from what I have found on these forums from last year the issue existed then as well. Do you plan to fix the issue?

Some TurboTax customers are experiencing an issue with their Home Mortgage Average Balance. This can cause 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.

has this issue been resolved? I am having the same issues.

This is still an ongoing issue. Please sign up here for an update when the issue has been resolved.

My Workaround. 

**I am not a tax professional.  My approach seems logical but I am not a tax expert.**

Issue – I refinanced my mortgage in November and turbo tax calculated my mortgage interest deduction based on the wrong average balances for my initial and refinanced loans.

What happened –

My initial loan balance in January was ~$307K and it was ~$289K in November when I refinanced my loan.  Turbo Tax calculated my average balance to be ~$298K, but it really should have been ~$274K.

For my new, refinanced loan (which was effective in December for ~$312K), turbo tax calculated my average balance to be ~$312K, but it really should have been ~26K.  Table below captures my approach to reaching that conclusion.

To correct the average balance error, I manually changed the calculations that turbo tax derived and I entered the values that I calculated above.  To do this I entered the “Forms” view (Click "View" from the Header Menu, next to "File" and "Edit", and then click "Forms").

Once in the “Forms” view I selected the “Deductible Home Mortgage Interest Worksheet”.  I right clicked on the Months loan outstanding and selected override to change my initial loan value from 12 to 11 months and my new loan value to 1 month.

I then right clicked on the average balances and selected override to enter the average balance numbers shown in the table above.

The impact of these changes propagated through most of my other worksheets, but my Schedule A line 8A was still not correct.  I had to override line A2 on the “Tax and Interest Deduction Worksheet” with the value found on line 16 of the “Deductible Home Mortgage Interest Worksheet” to correct the issue on Schedule A line 8A.

If you have a similar problem and you can’t wait for TurboTax to correct this issue, then I hope this helps you out.

As a reminder, “I AM NOT A TAX PROFESSIONAL, but the math makes sense to me.”

Thanks! I tried to edit the forms and I couldn't, but maybe I didn't go into it the right way. I'm debating if I should do this, or just get my money back, and go to a tax prep software that does things correctly. I have used Turbo Tax for years, it's pretty disappointing that they don't seem to care. 

I also have this issue. It is extremely frustrating. I can't believe TurboTax hasn't fixed it yet. I am waiting to file. Please TurboTax, get this fixed ASAP!

Some TurboTax customers are experiencing the following error message when running the Federal Error Check

Check This Entry:

Tax and Interest Deduction Worksheet: Limited Interest and Points must be entered

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

However, we have received this work around if you would like to try it or you can wait for the fix.

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.

On the Tell us about any points paid to bank screen, answer in regards to the new loan when asked about points.

On the Tell us about any points paid to bank screen, answer in regards to the new loan when asked about points.

Thanks Cynthia for the information. I have 3 1098s from this year. We refi'd, so 2 are from the original mortgage on the house (one purchase and one HELOC used for home improvements). The third 1098 is the refi that paid off both of the first two loans and gave us some extra $ for more home improvements. I can add them together as per your instructions, but what do I do with the names of the banks? The way I read your instructions I would report all three 1098s as one in TurboTax. Is that ok to only report one bank name, even though I have 1098s from 3 banks?

Hi Cynthia,

  Now that I have reread your answer I'm still confused. The issue some of us are having is that TurboTax is not correctly reporting the average balance of our mortgages. This is my problem - I refinanced a loan, but TurboTax is showing my mortgage balance as the total of the loans instead of the average, thereby cutting my deductible mortgage interest in half. Wouldn't adding all of the 1098s together result in the same problem?

No.  You need to report all 1098 Mortgage Interest Statements on your income tax return. The mortgage interests may be deductible and are entered on Scheduled A (Itemized Deduction).

See, what do I do if I have multiple 1098's from refinancing, link.

Hi Joanna,

  I understand I need to report it all, and I am. The problem is TurboTax isn't doing the math correctly. My situation - I refi'd the original mortgage and a HELOC totaling $700k with a new mortgage at $800k. My average mortgage balance for the year is less than the $750k duduction limit. The problem is TurboTax treats it as if I had $1.5 million in mortgages and is only letting me write off half of it, because of the $750,000 limit. I know this is not correct but so far haven't found a solution. Several people are having the same issue. 

ya, that workaround makes zero sense... especially combined with the response to report all your forms, but also combine them all as one.

 As far as I can tell, this was an issue last year as well... Really disappointed in turbo tax.  About to use another method.

The links from the "experts" above and the email notification for said links say this has been resolved with an update. IT HAS NOT BEEN RESOLVED. The exact same thing is still ongoing.

Some Turbo Tax 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 return. See this link  for what to do if you have multiple 1098s. See also this Turbo Tax Help.

Seems like @JoannaB2 is likely a bot, seeing as she's posting the same info that has been posted in this same thread and does not work. 

Lockitdown's solution worked for me. I'm not a tax expert. I read IRS publication 936. On page 13 of pub 936 the directions for calculating the average balance is explained, and it lines up with this solution. 

  I also figured out how to edit the forms on the Mac CD version of TurboTax - you have to go to the form, click on the box you need to change, then go to the Edit menu and select 'override'. I did not have to fix the box on Schedule A - once I corrected the average balances of the mortgage everything propagated through the forms and worked correctly. 

  I don't understand why TurboTax still hasn't fixed this bug, but I imagine it is effecting millions of people that refinanced in 2020 to take advantage of the historically low interest rates. 

The averaging algorithm is wrong for re-fi's.  This needs to be fixed.

Using round numbers for example

In 2020

Loan1 Jan-Mar $1M

Loan2 Apr-Dec $1M

At no point was I  carrying both loans, so average balance should not exceed $1M\

I can only claim $750k, so factor is 0.75 ($750k/$1M).  I can deduct three quarters of my interest

TT's brain dead method assumes I have two loans each with average balance $1M.  So TT average balance is $1M+$1M=$2M!

Factor is now $750k/$2M or 0.375.  I can deduct a bit more than a third of my interest payments.  THIS IS TOTALLY WRONG!  TT really needs to fix this

Yep, and from what I can tell from searches, they had the issue last year as well. So it seems they don't care. Turning into Turbo Trash. 

I ended up doing it manually as outlined in this thread. Hopefully it was right, but can we trust any of the rest of the calculations? I'll be finding another tax prep method next year. This is BAD. It started to go downhill the year they changed what you can do with deluxe, to force more people to buy the more expensive version. 

I think Lockitdown and Joe Sqee have the right idea.  Need to use the edit/override method, although I think each of our issues are a little different.  This problem has obviously been going on for over a year, so Turbotax has a lot of audacity to say they expect to have the bug fixed soon, especially since taxes were originally supposed to be in by next week!!!   Why didn't they fix it this past summer or fall???   Turbotax should be totally embarassed!!!   I saved close to $6,000 by overriding their mistakes!   No, I am not a Tax authority, but I read the IRS booklet carefully, and it is actually quite clear, with appropriate examples.

How do I edit the worksheet manually in TT Premier Online