Turbotax not calculation my itemized deduction consistent with 2019

[RJNieglos20]

In 2019 I had total Deductions of $57,331 (Educator Expenses $250, Gifts & Donations to Charity $4,050, Mortgage Interest $23,599, Real Estate Taxes of $13,953, and State and Local Income or Sales Tax of $15479) The Real Estate Taxes and State and Local Income/ Tax exceeded the $10K threshold by ($19,432) so was excluded bringing my total deductions to $37,899 which was higher than the standard deductions so was itemized. 

Now, in 2020 Turbotax is showing I should use the standard deduction after total Deductions of $50,447 (Educator Expenses $250, Gifts & Donations to Charity $2,750, Mortgage Interest $18,894, Real Estate Taxes of $15,164, and State and Local Income or Sales Tax of $13,389*) The Real Estate Taxes and State and Local Income/ Tax exceeded the $10K threshold by ($18,553) so should be excluded bringing my total deductions to $31,894 which is higher than the standard deduction. When I click through and try to select switching to itemized though it suggests my total would only be $21,348 and not the $31,894? 

*What is odd though is that I have to imply or back into my State and Local Income amt of $13,389 because besides my std deduction the only number I see is the disqualified amt over $10K of ($18,553). The difference between std deduction and my total calculated is $7,094 which isn't peanuts. Looking for help to understand what is going on. 

[BillM223]

I take it you are using the Online product and haven't paid for it yet, so cannot see Schedule itself (which would answer your questions). 

First, the Educator expense is not an Itemized Deduction but goes on line 10 of Schedule 1 (1040). See IRS Tax Topic 458.

Second, the numbers you are giving for 2020 are the amounts you entered, not the amounts actually being used on Schedule A, right?

If so, I suppose the first thing is to go back though looking for typos.

The second thing is to wonder if your mortgage interest deduction has been reduced. As you may know, the rules for recent mortgages (which affects refinanced mortgages, too) has reduced the amount of interest that you can deduct. Is the sum of your mortgage plus any HELOC (home equity loan) more than $750,000?

So tell us about your mortgage.

[NCperson]

and if you refinanced that mortgage in 2020, there are bugs in the TT software that may be reducing your mortgage interest, even if your mortgage is below $750,000 (or even $1,000,000).

@BillM223 - if you have a $1,000,000 mortgage from pre Dec-2017 and refinance that with no cash out, the 'acquisition debt' doesn't change, so all the interest remains deductible.  The $750,000 limit does not apply in that case.  That is part of the 'bug' problem in TT with multiple board posts complaining.  

[BillM223]

@NCperson

Thanks for the comment. Yes, I am somewhat aware of the issues surrounding home mortgages, but I have not spent a lot of time focused on what TurboTax is doing. 

First, do you see any other likely candidates on the OP's list of Itemized Deductions that would cause some $10,000 in deductions to disappear - other than mortgage interest?

If not, your first paragraph suggests that this "bug" could account for a sizeable reduction in the deductible interest. What do we need to know about the OP's mortgages(s) so that we could reproduce the issue?

My "tell us about your mortgage" was unfortunately vague, but any clarity as to what we need to know would be helpful. Thanks.

[NCperson]

@BillM223 - we need to know if the OP refinanced or the servicing was sold .... when there are two 1098's THAT is where the bug manifests itself.  there are 100's of posts on multiple threads about issues with the mortgage calcs. 

For example, 1st 1098 is for a $450,000 mortgage.  And then 2nd 1098 is for $450,000 (whether a refi or a servicing transfer doesn't appear to matter)....TT sees that as an average mortgage of $900,000 so the interest gets haircut because of the $750,000 rule.  IT doesn't realize it is the same mortgage

[RJNieglos20]

OK, so this seems like the most likely issue I am facing because I did refinance in 2020. I actually refinanced right at the end of 2019 and then again in August of 2020 (50-75bps lower each time and got all the way from 4.375% to 2.99% !) I am guessing the dates I am using may be affecting this.

1st 1098 - Guaranteed Rate shows Mortgage Origination Date 12/20/2019 for Principal Amt 550,000 and Int Paid 3,434.91 and believe this was the active loan from 12/20/19 - 3/2/2020

2nd 1098 - Mortgage was assumed by NewRez from Guaranteed Rate on 3/2/2020 but shows Mortgage Origination Date 12/16/2019 for Remaining Principal Amt 548,281.37 and Int  received of 8,651.78 and this loan was active from 3/2/2020 - 7/29/2020

3rd 1098 - Paid off New Rez on 8/3/2020 for $546,813.64 and opened a new Mortgage as of 7/29/2020 for $553,000 with Int paid during the year of $6,806.94 and this loan was active from 7/29/2020 - Current

[RJNieglos20]

I purchased and downloaded the premium software for my desktop. Isn't it free Federal + 1 Free State ? If I need to click through to see certain forms and then just continue to work/ amend the return I can do that no problem...? 

[RJNieglos20]

As I read through and look back I think this may be the issue but not sure what to do exactly? 

My refinance in December 2019 by Guaranteed Rate transferred the servicing to NewRez in March 2020.

I refinanced again in July/August 2020 and paid off NewRez. I think from reading these notes and digging through Turbotax that I need to Add Guaranteed Rate and NewRez together and enter as One 1098

From Turbotax help link:

What if I have multiple 1098s related to a refinance done in 2020?

Hold up! Follow these instructions if you refinanced last year and your new loan amount is $375,000 or more ($250,000 if Married Filing Separately).

If you refinanced last year, you will have a 1098 from your previous lender and one from the lender you refinanced with. You'll need both forms to enter the details for this screen.

1. Gather all of your 1098 forms related to your refinance, e.g. the form from your original lender and the form from your new lender.
2. Grab a calculator and add the Mortgage Interest Received (Box 1) amount from each form and enter the total in TurboTax as Box 1 Mortgage interest.
3. Add the box 5 Mortgage Insurance Premium from each form and enter the total as Box 5 Mortgage insurance premiums. (If you weren't required to pay mortgage insurance premiums, these boxes will be blank on your forms and you won't enter anything here.)
4. Add the property tax paid from each form and enter it here next to Property (real estate) taxes paid.

5. Enter the remaining items from the 1098 loan that was paid off in 2020 for the Outstanding Mortgage Principal (Box 2), Mortgage Origination Date (Box 3), and the checkbox on box 7 (address of property securing the mortgage)

It's uncommon but you could have additional 1098 forms, for example, you refinanced multiple times or your loan was sold by your lender. If you do, follow the same steps but be sure to include info from all of your forms in your calculations for steps 2-4.

Once you're done here, hold on to your forms for when we ask about any points you paid when you refinanced. Points are a fee you pay to reduce your loan's interest rate. If you paid points, you'll see an amount in box 6 of the 1098 for your refinance.

[NCperson]

@RJNieglos20 - there is a bug in TT on how this is to be calculated - - there are many thread on this.

suggestion as you are under $750,000 in mortgage balance in any event.

The IRS actually defines the average as the interest for the year divided by THAT mortgages' interest rate. 

I would do that caculation for each of the 3 mortgages, then add the results together. 

Then enter ONE 1098, using THAT average for the mortgage balance and using the name of the LAST mortgage servicer.  

Note that if the result of your math exceeds 548,281.37, the percent over this number would represent the part of the interest that is not tax-deductible because it is cash out (unless you used the money to improve your home)

Keep your documents on how you calculated this in the freak event you get audited.  

Given you are so far under $750,000, expect for the small issue of the cash out, all the interest would be tax deductible. 

[RJNieglos20]

By combining the two 1098's related to the same loan and entering the Interest together it seems to have fixed the glitch and Turbotax is now showing Itemized deductions instead of the standard deduction. However, on the Deductions Summary page I show $19,447 in Mortgage Interest but when I get to the Itemized Deductions Overview it shows only $12,915... 

I seem to have corrected the issue of not getting credit for State and Local Income or Sales Tax in my first post but now the mortgage interest isnt being properly accounted for and I am receiving total deductions of only $26K instead of ~$32K when I calculate the exact same components as in my 2019 Turbotax software/return

[NCperson]

use this example on how to combine the 3 mortgages into one (although for simplicity, I will use two, but you will get the drift) 

Assume ..

• Early in the year I had a $500,000 mortgage at 5% interest that I refinanced during the year.  At the time of the refinance, the mortgage balance was $450,000 and the interest on the 1098 was $6,000
• Then I cash out refinanced to a new $560,000 mortgage at an interest rate of 3%,  The 1098 showed $12,000 of interest. I did not use the proceeds to improve my home

My average loan balance for the year was:

$6,000 / .05 = $120,000

$12,000 / .03  = $400,000

$120,000+$400,000 =  $520,000 which is my average balance for the year

The ending balance at the time of the refinance was $450,000, so $70,000 was cash out.  $70,000/$520,000 is 13.46%, so that percent of the total interest of $18,000 is NOT tax deductible.

Create a 1098 using the name of the most recent servicer showing the mortgage balance as $520,000, the interest as $15577.20 ($18,000 *.8654) and when asked about cash out, say there wasn’t any.

to further the example, next year my 'acquisition debt' remains at $450,000 until the mortgage amortizes down to that level.  So the percent of the mortgage that exceeds $450,000 also represents the percent of the interest that is not tax deductible.  Easy to show that $450,000 * 3% or $13,500 will be deductible next year while the rest, whatever that is, won't be.

[85tiger]

Ok - that is a big help!  So, I did not know what to call the fake 1098 report I was creating.  This makes sense and looks like it should be correct but won't the Feds be looking for a report to match each 1098 they have on file?

[NCperson]

@85tiger - they might, so be sure to save your documentation and calculations.  The true problem is there is a bug in TT that appears will not be corrected for the time being.  So the options are

1) enter the 1098s as you received then and get less benefit for the tax deductions

2) use another software package

3) use a workaround in TT that gets the benefit you are entitled to.  

pick your poison....

[RJNieglos20]

How is this acceptable from TT? I am already dreading the inevitable letter from the IRS about 1098's not matching if I go this route... 

[AmyC]

Look at your actual tax form for sch A that goes to the IRS. It lists mortgage interest and a number. It has your SSN at the top of the page. The IRS computer just goes through forms and numbers and adds to get totals. As long as your 1098 totals match the IRS 1098 totals, it is the same thing. There can even be a small difference for rounding.