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zobrik
Returning Member

Turbo tax should have given me full $8,168 mortgage interest paid deduction, but only gave me $4,430. Resulted in use of standard deduction.

My original mortgage was in 1986.  Refinanced in 1996 and 2011.

1 Best answer

Accepted Solutions
Vanessa
Level 3

Turbo tax should have given me full $8,168 mortgage interest paid deduction, but only gave me $4,430. Resulted in use of standard deduction.

An example of how to calculate the interest is calculated when you do a cashout with a refinance. 

If you refinanced your home in 2012, with a balance on your mortgage of $225,000 and took out $75,000 to pay off debt. Your new balance was $300,000. The $225,000 is your original home purchase amount,  the $75,000 is not so that interest is not deductible. Your original home purchase price is now 75% of the mortgage balance.

If you refinance again a month later before making any payments (for easy math sake) and take out $400,000, of which you use $100,000 to buy a boat, you would only count 56% of the balance as your original home loan balance. (225,000/400,000=.5625) So with no other refinancing, your current loan balance is $300,000, you would only be able to deduct interest on 56.25% of the balance or $168,700 (300,000x .5625)

Now, if you used the $100,000 to build an addition onto your house instead of buying a boat with it, this would be counted as substantially improving your home, therefore the amount that would now have deductible interest would be 81.25% ((225,000+100,0000/400,000=.8125) In this situation, you would be able to deduct the interest on 81.25% of your current balance if there was no further financing. 

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9 Replies
SweetieJean
Level 15

Turbo tax should have given me full $8,168 mortgage interest paid deduction, but only gave me $4,430. Resulted in use of standard deduction.

Did you apply some of your mortgage interest as a Business expense on Schedule C?
That is totally separate from Schedule A  v. the Standard Deduction.
zobrik
Returning Member

Turbo tax should have given me full $8,168 mortgage interest paid deduction, but only gave me $4,430. Resulted in use of standard deduction.

No.  I entered the total as a personal deduction and only the $4,430 showed up on Schedule A.
zobrik
Returning Member

Turbo tax should have given me full $8,168 mortgage interest paid deduction, but only gave me $4,430. Resulted in use of standard deduction.

No.  I entered the total as a personal deduction and only the $4,430 showed up on Schedule A.
Vanessa
Level 3

Turbo tax should have given me full $8,168 mortgage interest paid deduction, but only gave me $4,430. Resulted in use of standard deduction.

Did you take cashout when you refinanced?
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zobrik
Returning Member

Turbo tax should have given me full $8,168 mortgage interest paid deduction, but only gave me $4,430. Resulted in use of standard deduction.

yes, and a portion of it was not used to buy or improve my house.  Is there some formula that gets applied to reduce interest not related to purchase and improvement of the house?
Vanessa
Level 3

Turbo tax should have given me full $8,168 mortgage interest paid deduction, but only gave me $4,430. Resulted in use of standard deduction.

Yep
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Vanessa
Level 3

Turbo tax should have given me full $8,168 mortgage interest paid deduction, but only gave me $4,430. Resulted in use of standard deduction.

See below
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Vanessa
Level 3

Turbo tax should have given me full $8,168 mortgage interest paid deduction, but only gave me $4,430. Resulted in use of standard deduction.

An example of how to calculate the interest is calculated when you do a cashout with a refinance. 

If you refinanced your home in 2012, with a balance on your mortgage of $225,000 and took out $75,000 to pay off debt. Your new balance was $300,000. The $225,000 is your original home purchase amount,  the $75,000 is not so that interest is not deductible. Your original home purchase price is now 75% of the mortgage balance.

If you refinance again a month later before making any payments (for easy math sake) and take out $400,000, of which you use $100,000 to buy a boat, you would only count 56% of the balance as your original home loan balance. (225,000/400,000=.5625) So with no other refinancing, your current loan balance is $300,000, you would only be able to deduct interest on 56.25% of the balance or $168,700 (300,000x .5625)

Now, if you used the $100,000 to build an addition onto your house instead of buying a boat with it, this would be counted as substantially improving your home, therefore the amount that would now have deductible interest would be 81.25% ((225,000+100,0000/400,000=.8125) In this situation, you would be able to deduct the interest on 81.25% of your current balance if there was no further financing. 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
zobrik
Returning Member

Turbo tax should have given me full $8,168 mortgage interest paid deduction, but only gave me $4,430. Resulted in use of standard deduction.

Thanks

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