Where to enter amount of previous mortgage? My refi mortgage has cash-out and I need to determine how much of that is deductible.

[yangluo]

I understand that only the interest of the previous paid-off mortgage will be deductible, but I did not find any way to tell TurboTax that amount.

[Critter-3]

Did you refi in 2022?   If so you should have gotten a 1098 from each bank ... enter the older mortgage first then follow the interview carefully.

[yangluo]

I did refi in 2021 and put in two 1098s with no problem.

In 2022 there’s only the new lender, but my understanding is that it is still limited by how much of the new loan was used to pay off the old one. 

[Vanessa A]

Yes, the amount of interest you can deduct will forever be limited on this loan and any future refinances by the amount you took out that was not used to buy, build or substantially improve the home that it secures.  

So if in 2020, you had a $50,000 cash out and did a refinance for a total of $200k, you would only be able to deduct 75% of the interest on the loan for the life of the loan.  If you refinance and never take anything more out, it will always be the same.  If you take more cash out to pay off credit card debt or buy a boat, then the amount of interest you can deduct will be diluted further by that percentage.  If you take cash out to put a new roof on, then this would increase the percentage of interest you can deduct.  

[yangluo]

@Vanessa A yes that’s also my understanding. However, I did not find any place in TurboTax where I can enter the amount of the previous loan. Did I miss something?

[Critter-3]

Delete anything already there and start that 1098 section again ... the program will ask the needed questions and do the math for you ...

[Vanessa A]

Yes, after you enter your 1098, you will continue through the screens and come to one that says Lets get some details about this loan.  You will select this loan is a refinance of a previous loan. 

Next you will select yes to did you use this loan for anything besides paying off the existing loan.  Next you can select the amount or let TurboTax help you figure out the amount you can deduct. 

[yangluo]

@Critter-3 yes that’s what I did. Looks like you put the previous loan amount (150k in this example) in “How much of your loan did you use to build, remodel, or repair the property it’s secured by?” right? That’s where I got confused as it sounds like I can only put the amount of improvements (if any) I made, NOT the original principal that I paid off with refi.

@Vanessa A see above

[Critter-3]

I will agree that the program should reflect the IRS terms "buy, build or improve" but that is what they are asking for in that spot ...