Deductible Home Mortgage Interest Worksheet 2020 - Error Avg Balance

[GSD77]

Putting in 12/31/2020 ending balance as 1/1/2021 balance is correct.  Also you are correct loan not paid off so 2nd box should be blank.

So the back of the envelope check that averaging those two numbers is about $926,000 and you feel OK 

[GSD77]

Sorry to compound my answer:

If you calculate a percentage of 

750,000 divided by  Average Principal Amount Outstanding during 2020 = Percentage Deductible

Multiply Percentage Deductible by Total Interest Paid, this amount be amount on Schedule A, or at least close.

Average Principal Outstanding is 1/1/2020 Principal Outstanding plus 1/1/2021 Principal Outstanding divided by 2.

Example :

750,000 / 926,000  = 80.994%

[zazapuppy]

Thank you very much for your detailed explanation.

yes my avg balance is around 910K.  I used beg of balance of 2020 and ending balance of 2020 to calculate avg balance.  I didnt use original loan amount since the loan that got refinanced again was not the original loan.  

I think the lender name doesnt show on the form that got sent to IRS.  I only put one lender on the form though since i didnt get to add another one in time before i saw your response.  I think as long as it doesnt get sent to IRS, it is ok.  The most important thing is the right deduction of mortgage interest and the year of purchase of home.  you are right.

thank you so much for your help in this community again.

[myles1]

just replying so i get notifications if anyone figures out a fix to this.

[GSD77]

Yes, add up interest paid on all 1098s and enter combined total in Box 1.

Mortgage Principal Outstanding - Enter 1/1/2020 principal balance in Box 2.  If over $750,000 you need to calculate average mortgage balance, per irs instructions, to maximize interest deduction.  TT will do it, by asking for ending mortgage balance and will calculate an average of beginning and ending; assumes normal monthly payments without big lumpsum during year. 

Date is important only if your  original purchase date on your property was before December 16, 2017 when there was a $1,000,000 loan balance limitation.  If purchased before 12/16/2017, limitation is on $1,000,000 of mortgage loan.

Put the original, original loan date (first loan on property)  as mortgage origination date.

I put both lenders name in mortgage "Lender Name" box on TT's first screen.  Could be like "Citibank and Wells Fargo Banks  (Or if one bank maybe Citibank (2 loans) or account XXX123 and account XXX456)   

For real estate taxes, combine all taxes paid and enter into TT - third screen as Property (real estate) taxes paid.  Or enter on the specific screen for real estate taxes paid on TT deductions screen.

Post additional questions. 

Hope it helps 

[GSD77]

OLD POSTS

Box 1.  Add up all of mortgage intersest paid on mortgages.  So add up amounts on all 1098 forms.  

Box 2. Enter outstanding mortgage balance at beginning of year 1/1/2020 TT test to make sure not over $750,000 generally, if over $750,000 your interest deduction may be limited  If over $750,000 need to calculate an average balance outstanding use IRS instructions.

Box 3. Date of original mortgage ordination date on property, that is, date of first loan on property.  Has to due with $750,000 limitation or perhaps $1,000,000.  See instructions.

Box 10 on 1098 or yourReal Estates tax bill:  Add up all real estate taxes paid and enter in Property (real state) taxes paid box. On TT interest screen or enter through next TT window “Property Taxes”

so basically add up  both interest paid and real estate taxes paid and enter as one 1098 in TT.  I personally named the Mortgage Lender as a combined name (e.g. caitbank and Wells Fargo mortgages.

Post again if more questions.  If below $750,000 TT should accept and enter the combined interest and real estate taxes paid as full deductible and transfer to Schedule A

[DaveF1006]

It depends. @GSD77 was trying to figure out if you had a question in your post but determined that this is a detailed answer. Great answer.

[42Amy1]

@GSD77 

Thank you, If I follow these instructions will TT calculate the deductible portion of my mortgage interest based on beginning and end mortgage balance (old and new loan)?  Wouldn't that be skewed to a too high deduction because the refinance (with cash-out) was in Feb. 2020, so only a small portion of the total interest came from a significantly lower loan balance?

In addition, I had $20k in home improvements the new cash out paid for, that occurred within 24 months prior to the feb. 2020 Refinance that I believe I can add to the 100% grandfathered acquisition debt (AD) of the old loan (origination date Nov. 2017) -Where would I add that additional AD?

Thanks so much again for your clear answers.

[42Amy1]

Sorry, @GSD77 another difficult question. I have already determined that all my original loan balance (prior to 2020 REFI) is 100% acquisition debt that because it originated Nov. 2017, the limit up to $1 million applies. However, it is NOT the original purchase loan. It is a refinance of the purchase (Original ) loan that was itself refinanced in both 2015 and Feb. 2020 both with cash-out for improvements.  (renovating an old house since 2013 purchase)

Do I enter  the origination date (on the combined 1098) of THIS 'original loan' (Nov, 2017) or from the Original purchase loan (sept., 2013-a much lower balance) that preceded it which makes the whole thing very tortured?

All previous cash outs plus an additional $20k (within 24 months of 2020 REFI) were spent on improvements so the Nov 2017 loan plus additional 20k above its balance should be acquisition debt and grandfathered?   TT and answers here all seem to refer to the 'original loan' prior to the 2020 refinance as the original purchase loan.

THANK YOU

[GSD77]

Fully deductible interest.

In most cases, you can deduct all of your home mortgage interest. How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds.

If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category.) If one or more of your mortgages doesn’t fit into any of these categories, use Part II of this publication to figure the amount of interest you can deduct.

The three categories are as follows.

1. Mortgages you took out on or before October 13, 1987 (called grandfathered debt).

2. Mortgages you (or your spouse if married filing a joint return) took out after October 13, 1987, and prior to December 16, 2017 (see binding contract exception below), to buy, build, or substantially improve your home (called home acquisition debt), but only if throughout 2020 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).

   Exception. A taxpayer who enters into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, is considered to have incurred the home acquisition debt prior to December 16, 2017.

3. Mortgages you (or your spouse if married filing a joint return) took out after December 15, 2017, to buy, build, or substantially improve your home (called home acquisition debt), but only if throughout 2020 these mortgages plus any grandfathered debt totaled $750,000 or less ($375,000 or less if married filing separately).

The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home.

See Part II for more detailed definitions of grandfathered debt and home acquisition debt.

You can use Figure A to check whether your home mortgage interest is fully deductible.

Verbal from publication936.  Was all of your loan, with all cash out  (i.e. acquisition debt) except for the $20,000 taken out via mortgage loan by November 2017?  Based on Publication 936 looks like deductible, filing jointly, up to $1,000,000.  Said $20,000 in 2020, not certain unless below $750,000 married, joint.  If you go to Publication a Chart follows.  Concerned about  last decision point on chart that says "all debt was acquired before December 16, 2017 (Decision 4 Below).

I copied text version of chart below:

GETTING ABOVE MY PAY GRADE,

but $1,000,,000 for all acquisition debt prior to 12/16/2017 (assuming married joint).  Made assumptions that loan above $1,000,000.  Think using November 2017 date will have same effect as using 2013 date, (i.e. $1,000,000 limitation).  Think the 'All Debt prior 12/16/2017 will be ok subject to $1,000,000 limitation.

Back of envelope, not certain about the $20,000.

See of anyone else responses and as other responder what he meant by IT DEPENDS.   

AS I SAID, GETTING ABOVE PAYGRADE, but if had $1,000,000  or more outstanding at Nov 2017, including money put back into property then I would say all but $20,000 would be OK.

BUT ONCE AGAIN GETTING ABOVE PAY GRADE.

 

Figure A. Is My Home Mortgage Interest Fully Deductible?

Figure A. Is My Home Mortgage Interest Fully Deductible?

Summary: This flowchart is used to determine if the taxpayer's home mortgage interest is fully deductible.

Start Here

This is the start of the flowchart.

Decision (1)

Do you meet the conditions (Footnote 1) to deduct home mortgage interest?

Footnote 1: You must itemize deductions on Schedule A (Form 1040). The loan must be a secured debt on a qualified home. See Part I, Home Mortgage Interest, earlier.

If no, you can't deduct the interest payments as home mortgage interest (Footnote 2). Footnote 2: See Table 2 in Part II of this publication for where to deduct other types of interest payments. Stop here

If yes, continue to Decision (2)

Decision (2)

Were all of your home mortgages taken out on or before October 13, 1987?

If yes, your home mortgage interest is fully deductible. You don’t need to read part II of this publication. Stop here.

If no, continue to Decision (3)

Decision (3)

Were all of your home mortgages taken out after October 13, 1987, used to buy, build or substantially improve the main home secured by that main home mortgage or used to buy, build or improve the second home secured by that second home mortgage, or both?

If no, go to part II of this publication to determine the limits on your deductible home mortgage interest.

If yes, continue to Decision (4)

Decision (4)

Were your (or your spouse’s if married filing a joint return) mortgage balances $750,000 or less ($375,000 or less if married filing separately) (or $1 million or less ($500,000 if married filing separately) if all the debt was incurred prior to December 16, 2017) at all times during the year (Footnote 3)?

Footnote 3: A taxpayer who enters into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, is considered to have incurred the home acquisition debt prior to December 16, 2017, and may use the 2017 threshold amounts of $1,000,000 ($500,000 for married filing separate).

If yes, your home mortgage interest is fully deductible. You don’t need to read part II of this publication. Stop here.

If no, continue to Decision (5)

Decision (5)

Were your (or your spouse’s if married filing a joint return) grandfathered debt plus home acquisition debt balances $750,000 or less (Footnote 4) ($375,000 or less if married filing separately) (or $1 million or less ($500,000 if married filing separately) if all the debt was incurred prior to December 16, 2017) at all times during the year (Footnote 3)?

Footnote 4: See Part II of this publication for more information about grandfathered debt and home acquisition debt.

Footnote 3: A taxpayer who enters into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, is considered to have incurred the home acquisition debt prior to December 16, 2017, and may use the 2017 threshold amounts of $1,000,000 ($500,000 for married filing separately).

If yes, your home mortgage interest is fully deductible. You don’t need to read part II of this publication. Stop here.

If no, go to part II of this publication to determine the limits on your deductible home mortgage interest.

This is the end of the flowchart.

[GSD77]

I suspect, that as you said the $1,000,000 applies, if the loan is over $1,020,000 average balance ( with the $20,000) that the $20,000 would have no effect on amount deductible.  Would   allow you to deduct (1000000/loan amount)  times interest paid if average loan balance is greater than $1,000,000.  Technically, $20,000 would only complicate/be issue below $1,000,000 actually.  Above pay grade, but technically only ~98% would be deductible until $750,000 level met.  Don’t believe TT would be sophisticated enough to track though.

[CourageouSTORM]

I also believe there is an error in this calculation, we refinanced a loan that was $360,000. We refinanced 3x last year, so there are four loans.  Yet, On the 2020 Tax Breakdown page, in the "Amount Entered" column, the amount entered for interest paid was $13,904--yet the "Amount Allowed" was only $7,293.  WHY?  We don't meet any of the other criteria--having gone through all the other questions as to "why" we might not have received the deduction.  This has to be a common scenario for those of us who were smart enough to continue to get lower interest rates throughout the year!  HELP!

[GSD77]

See earlier comments by me.  TT program wrong or not updated.  

My quess is that you entered all 4 mortgages on separate lines and TT doesn’t handle correctly.

First, put in the Lender name in first box, or use combined name if used more (e.g. . Citibank and Well Fargo) not really important what you use.  Doesn’t show on 1040.

Box 1 - Use calculator or spreadsheet to add all 1098 interest paid amounts from all 1098s.

Box 2 - Enter 1/1/2020 mortgage principal amount (beginning principal amount).

Box 3 - Enter original mortgage date for the property.  Probably on first mortgage loan before any refinancing.  Not relevant to you as your loan is below 750000 principal amount; amounts above 750000 limits your interest deduction.  By the way TT is adding up your 4/5 loan principal amounts of 360000 and showing your principal outstanding as 360000 times 4 or times 5 and is therefore limiting your interest deduction.

Property (real estate) taxes paid - once again add up all payments an enter within this 1098 detail screen on TT or enter on the specific real estate taxes line that in next on TT step by step question

post additional questions.  If you enter on one line TT software will accept entire interest, which appears to be correct based upon your maximum balance

[GSD77]

OLD POSTS

Box 1.  Add up all of mortgage intersest paid on mortgages.  So add up amounts on all 1098 forms.  

Box 2. Enter outstanding mortgage balance at beginning of year 1/1/2020 TT test to make sure not over $750,000 generally, if over $750,000 your interest deduction may be limited  If over $750,000 need to calculate an average balance outstanding use IRS instructions.

Box 3. Date of original mortgage ordination date on property, that is, date of first loan on property.  Has to due with $750,000 limitation or perhaps $1,000,000.  See instructions.

Box 10 on 1098 or yourReal Estates tax bill:  Add up all real estate taxes paid and enter in Property (real state) taxes paid box. On TT interest screen or enter through next TT window “Property Taxes”

so basically add up  both interest paid and real estate taxes paid and enter as one 1098 in TT.  I personally named the Mortgage Lender as a combined name (e.g. caitbank and Wells Fargo mortgages.

Post again if more questions.  If below $750,000 TT should accept and enter the combined interest and real estate taxes paid as full deductible and transfer to Schedule A

[GSD77]

OLDER POSTS

Box 1.  Add up all of mortgage intersest paid on mortgages.  So add up amounts on all 1098 forms.  

Box 2. Enter outstanding mortgage balance at beginning of year 1/1/2020 TT test to make sure not over $750,000 generally, if over $750,000 your interest deduction may be limited  If over $750,000 need to calculate an average balance outstanding use IRS instructions.

Box 3. Date of original mortgage ordination date on property, that is, date of first loan on property.  Has to due with $750,000 limitation or perhaps $1,000,000.  See instructions.

Box 10 on 1098 or yourReal Estates tax bill:  Add up all real estate taxes paid and enter in Property (real state) taxes paid box. On TT interest screen or enter through next TT window “Property Taxes”

so basically add up  both interest paid and real estate taxes paid and enter as one 1098 in TT.  I personally named the Mortgage Lender as a combined name (e.g. caitbank and Wells Fargo mortgages.

Post again if more questions.  If below $750,000 TT should accept and enter the combined interest and real estate taxes paid as full deductible and transfer to Schedule A