TurboTax Premier 2021 for Mac does not correctly compute mortgage interest deduction from a refinanced mortgage

[drtaxman]

I have a similar problem to the one described here ("TurboTax Premier Not Deducting Mortgage Interest on Refinanced Mortgage") . Although not the same exact problem.

I took out a loan for a primary residence in 2017. In 2020, I dealt with the complexity by combining the multiple 1098s I received.

For the 2021 tax year, I have a single 1098. The refinance happened in 2020. The refinanced loan did not include any additional cash out and is less than the original loan. The original loan was taken out in October of 2017, so the refinanced tax deduction eligibility should be grandfathered up to the $1m.

After I put in the information in TurboTax Premier for MacOS. It completely ignores my input and does not give any deduction for the interest. I tried a variety of options to get it to do the right thing (as if I computed the value by hand). Nothing seems to work other than change the origination date (which for the refinance was in 2020) to the origination date of the original loan. This however would cause a discrepancy in the 1098 reported to the IRS.

I tried some of the solutions described in the link above. None of them worked.

Anyone else have this problem and know how to fix it?

Should I just adjust the origination date to the old 2017 origination date and move on?

[AliciaP1]

Only debt incurred prior to 10/14/1987 is considered Grandfathered Debt per the IRS.  Per Publication 936 updated for tax-year 2021:

Grandfathered Debt

If you took out a mortgage on your home before October 14, 1987, or you refinanced such a mortgage, it may qualify as grandfathered debt. To qualify, it must have been secured by your qualified home on October 13, 1987, and at all times after that date. How you used the proceeds doesn't matter. Grandfathered debt isn't limited. All of the interest you paid on grandfathered debt is fully deductible home mortgage interest.

You may have entered the 2017 loan origination date in error for your 2020 tax returns.  The current loan origination date should be the 2020 date and if the outstanding balance on the mortgage is over $750,000 if you are filing Married filing jointly.

[drtaxman]

Thank you for your response! I appreciate it! Grandfathered was probably not the right term to use on my part because those refer to the loans originated before 1987.

In this case, my original loan was for over $1m. The refinanced loan should still be eligible for $1m deduction because it was a smaller loan than the original. I'm referring to a similar condition as to this one.

The problem I'm having is that TurboTax is not deducting anything for the interest that I paid. Regardless of the $750k or $1m limit. I think there is a bug in the software that needs to be fixed.

[NashayLO]

If you think there is a bug and need further assistance, please contact TurboTax Customer Support, What is the TurboTax phone number?

[drtaxman]

I called. Unfortunately after 2 hours of being on the phone, the support staff acknowledged that there was an issue. The software was not working properly, however, they weren't able to fix the issue.

[jpolacco]

I am having the same issue.  I guess the only option is to do what you said:

Nothing seems to work other than change the origination date (which for the refinance was in 2020) to the origination date of the original loan. This however would cause a discrepancy in the 1098 reported to the IRS.

And then if you get audited, write a letter of explanation to the IRS about Turbo Tax's error in the software.

It's not fun having to fudge data on your tax return to compensate for Turbo Tax's failures. 

[AmyC]

On your actual tax return, only the allowed mortgage interest is reported. The dates and amounts are for worksheets to determine the allowable mortgage interest. They are not a part of your return. As long as the interest is correct, then your return will be correct. This is the form that actually goes to the IRS, Schedule A (Form 1040) PDF

@jpolacco

[mjp62]

I discovered a similar issue when I was about to submit my taxes this year (on PC version, not MAC).  We had a refinanced loan and a HELOC and despite answering all the questions correctly (no cash taken out of the refinanced loan, and more money spent on the home using the HELOC than is outstanding on the HELOC), it would only deduct a small amount of the the interest from the refinanced loan, while deducting all the interest on the HELOC loan.  I spoke with 2 different diligent Turbotax agents on 2 different evenings, the second one for an hour.  We tried correcting the worksheet and the step-by-step questions several times and initially it made no difference.  Eventually one of the times we corrected the worksheet for the refinanced loan and said that there was no cash taken out (which was always true), and we zeroed the amount the program had filled in (which was the amount taken out on the initial HELOC loan, which was irrelevant), the proper amount of interest (all of it) was reflected in the worksheet and on schedule A, and I got the extra $4000 I was entitled to.  It looks like I have the same issue for 2020 and didn't notice, so I will likely have to file an amended return for last year if I can get the program to do it right.  It's always possible that I filled something out wrong, but if I did, the Turbotax agents and I couldn't find what that was.

[AmyC]

If you need to amend your prior year, you would do better to skip the worksheets in the program and go straight to Table 1 on page 12 which is used for all loans combined in one place. The IRS does not receive worksheets, only the sch A with the final answer.

See About Publication 936, Home Mortgage Interest Deduction. The instructions to go through line by line are after the table. There are examples throughout to help you.

@mjp62

[siurek1]

Is turbo tax planning to address this issue.  It's not a complicated fix but it is in error and not consistent with the mortgage interest publication.

[pkrai]

How can we fix or workaround this issue. I refinanced my loan in this year and it is allowing only partial interest in Schd A. It's value is half of what it should be.  

[RaifH]

TurboTax is correctly applying the $1 million limit to your mortgage if you have a refinance but originally bought the property before December 15, 2017. However, to get it to apply the correct limit, you have to go all the way through the questionnaire: 

1. After you enter Form 1098 and go through all the questions, it will take you back to your Home loan deduction summary screen, click Done.
2. Answer Do either of these apply to this loan? TurboTax will correctly apply the proper mortgage limit on your home acquisition debt. If your old home was purchased before December 15, 2017 a higher limit applies. 
3. Enter the outstanding loan balance on January 1, 2022 in the first field. Leave the second field blank if the loan is outstanding. 

TurboTax calculates the average balance by taking the average of the outstanding mortgage principal on Form 1098 and your balance due on January 1, 2022. If you refinanced this year, it only calculates your limit based on loans that were outstanding at the end of the year. Make sure that both loans are marked as being secured by your primary home and that the old loan is NOT the most current form. 

 @pkrai