The software incorrectly fills out the Pub 936 mortgage deduction worksheet when user has two 1098 forms for mortgage interest, one for mortgage acquired before 2017 (but after 1987) for < $1M, and one for a mortgage acquired after 2017 with principal > $750K (in the case where home is sold and a new home is purchased). It sums both principal values under “mortgages acquired after 2017”. When the new, more expensive home is purchased late in the year, and little interest is paid, it erroneously scales the fully allowable mortgage interest from the mortgage acquired before 2017 by the factor of the new 750K mortgage deduction limit over the current mortgage principal.
Even worse, “completecheck” notices this error but gets caught in an endless loop because it points to the top of the Pub 936 worksheet (where names are) as the error, and no fix to names solves the problem. So turbotax never exits completecheck and you cannot file.
The "Outstanding Mortgage Principle" amount for the 1098 on the sold house should be $0. This way, when both 1098s are "added" the outstanding balance is correctly shown as the outstanding balance on the current mortgage.
The Box 2 amount is required (by the IRS) to be the outstanding mortgage principal on 1 January 2021. TurboTax will not allow the amount to be $0.00 in the Box 2 entry item for the Form 1098.
There is no known bug for Mortgage Deduction for Tax Year 2021. Depending on your situation there are a couple of ways to handle this.
This is indeed a bug. The solution suggested below seems to be totally wrong when you enter 0 for box 2. That would just make your entire interest deductible which shouldn't be the case if the loan amount is > 750k
This doesn't seem to be correct imo. Let's say you have 2 loans
Old one: principal 750k interest 10k (close in July)
New one (open in July) principal 1.5M, interest 20k
I believe the correct math here should be 10k + 20k * 750k/1.5m = 20k
but if you type 0 for box 2 you will end up getting 30k deductible interest which I don't know if IRS would like to see that
> The "Outstanding Mortgage Principle" amount for the 1098 on the sold house should be $0. This way, when both 1098s are "added" the outstanding balance is correctly shown as the outstanding balance on the current mortgage.
Why? If both loans have different amounts, how would this even work? I can give you an example how this would go wrong.
Let's say the principal of your old loan is 3M and you paid $100k for interest
The principal of your new loan is 750k
If you do what you just said, the 100K interest you paid would all become eligible for deduction which is wrong.
I agree. Any updates? I have posed a similar question on the thread below. In my case I re-fi'ed in Oct and payed down my mortgage under 750k (was over with the previous mortgage). Turbo Tax is only taking the current balance and allowing me to deduct my all the interest paid for all my previous mortgages. Anyone had any luck or insight?
The worksheets are not a part of the return. You can make one correct entry instead. Your goal is to file an accurate return.
See About Publication 936, Home Mortgage Interest Deduction part II on page 9. Use page 12 to combine all loans. Only one table, table 1, is used for all of your loans in one place. The instructions to go through line by line are after the table. There are examples throughout to help you.
Page 13 has mixed-use mortgages.
In addition, we have found many people are not using the information in the pop-up window explaining how to work with some situations. In the program, there is a pop-up box which explains to use the original date for the refinanced loan to get the grandfather rule. Otherwise, you will not get the deduction. This is only true if the refinanced debt does not exceed the debt balance at the time of refinancing.
I agree, but I think the Turbo Tax software is misleading with how it does its calculations and will have a lot of folk either filing incorrect returns. Either tell users to review Pub 936 and manually enter the one entry or provide a programatic way to enter this data using the details from 936. I am seeing this as a fail from the software and a potential audit risk.