Federal tax due increases when second 1098 is added

[FzAll]

Hi,

It doesn't make sense that the Federal tax due in the header increases significantly when second 1098 form from 2nd lender is added.

Federal tax due after entering first lender 1098 is added: $2487 (in red)

Outstanding principal is $418k

Refinanced loan in Nov '20. Added 1098 information from refinanced loan as second lender.

Federal tax due increased to $3887 (in red) moment I say Yes to "Is this loan secured by property of min?".

We only paid interest of $710 in 2020 and it was refinanced so outstanding principal is $401k. So it's little unclear why selection of Yes to the loan secured screen should increase the federal return due by $1400. Is this buggy?

We did report property tax in rental property section and the property tax is not reported in both lenders' section. I also said, no points on one of the screens before it adjusts the federal tax due field.

If I have say No - not secured then it goes down to $2487 (in red). 

Very confused on this behavior. One would think by adding more interest would reduce from $2487 by few dollars. The only major difference is the reduction in outstanding principal balance to $401k in reporting 2nd 1098 entry.

Completing subsequent page that says "Is this refinanced, etc?" doesn't change Federal tax due information from $3887 to $2487.

Thanks in advance!

[JohnB5677]

If you've refinanced or had your mortgage lender changed, the outstanding mortgage principal listed in the combined total of them on Line 2 of the 1098 will be too large.

When you put an outstanding balance in both forms, then the program adds them together and if that number is greater than $750k, then it puts you in the category to "limit interest".

To get that to go away, you need to go back to the deductions section and click on "edit" mortgage interest statement. Enter both 1098's.

Change the line 2 of the mortgage that you no longer owe on (like the one that you refinanced and paid off) to a 0 (zero) because you have refinanced out of that loan and no longer have an "outstanding mortgage principal".

[FzAll]

Thanks for your response JohnB5677!

I get an error from TT saying, "Outstanding mortgage principal must have value " when I entered 0 to paid of loan 🙄. I updated to 1 as well but still the txa difference jumps by $1400.

I think TT should include a checkbox that says this loan is paid off on the form and use that for calculating overall mortgage principal. This'll allow TT to do sum of all mortgage entries and provide accurate information thus avoiding such errors. 

These forms are meant for dummies and I consider myself very proficient with software applications, if it trumps me I can't imagine how many others are unaware of these issues. A person simply entering information from 1098 may not know the impact on their returns due to this gltich.

In addition, I tried multiple combinations in my test. TT offers wrap up sheet once all 1098s are entered, I think it's supposed to do the calculation I referred above and in your reference. Confident to say it's not calculating correctly and is buggy. I remove second 1098 and the tax due changes significantly.

Thanks again JohnB5677!

[FzAll]

Is there a moderator from TT / Intuit on this forum?

I think I found the bug in further digging into why the tax due/refund changes  significantly.  In a nutshell, Sch A line 8 is not taking into consideration rental property interest allocation from Sch E line 12a when second refinanced loan is added and it changes the deduction to standard deduction instead of itemized deduction. 

I'm unsure of the fact  if Sch A is supposed to use sum of effective interest from mortgage interest work sheet line 16 + Sch E line 12a to begin with.

Response from moderator will be appreciated.

Thanks! 

[FzAll]

It might help others in case you are wasting your time on same situation. 

If you have multiple 1098 and have rent income then read below, I missed to read that link and here's what it says:

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.

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The instruction is bit confusing to me esp. step 5 but I went ahead used that information as stated from the loan from beginning of the year.

And when this step is followed, Turbotax does not mess up Schedule A line 8a changing the deduction from itemized to standard deduction. 

[lilbluetip]

Thank you!

Worked great!