"Home Mortgage Interest Worksheet" errors

[paulofoakland]

I am working (around) your bug regarding multiple 1098 forms. I am consolodating the two forms I have and that seems _close_ to working except: the form is accepting information about how the cash out was arrived at (the sub worksheet with itemization of the expenses related to house accq. etc. so the remainder can be identified.

BUT the "Home Mortgage Interest Worksheet" wants to call the out standing principal at 12/31/2019 the "Beginning Balance" in F3. Which makes no sense. I cannot tell where that number then comes into play but it is wrong and that can lead to no good outcome.

[DianeC958]

When you have multiple 1098 forms the information for Box 2 should be $0 for any mortgage that was refinanced during the year or sold to another mortgage company.

Box 2 is asking for the balance due on the mortgage as of 01/01/2019 which for the refinanced mortgage and a sold mortgage would be $0.  

By putting $0 into box 2 for refinanced and sold mortgages the limitations will not be imposed unless your loan is over $1 million.

[jake93]

That is not correct information regarding Box 2. Box 2 is for the balance as of 1/1/19 or the acquisition date when the loan is acquired during 2019 but after 1/1/2019. This is from the 1098 instructions from the IRS. 

[jake93]

This is definitely an issue (see thread 2019 Limit Deductible Mortgage Interest Question Not Working). I have the desktop TT program. I have 3 1098s.  One is the original loan, one is a refinance and the 3rd is a transfer. I sent my tax file to TT as requested regarding this issue. They have not responded.

There have been 2 work arounds suggested by TT users.

The first is to go into the actual form and check the “No” box.

The second is to answer the tax limitation question “No”, do not click continue, save the return, back out of the program, reopen the program and manually continue your return at the next step. 

I have actually tried both solutions and both cleared all the error checks and were deemed ready to efile. I have successfully efiled using the second work around. My return has been accepted and approved by the IRS and state. 
TT definitely needs to fix this problem. I don’t pay for tax software to have it calculate my taxes incorrectly. In my case, the error causes a taxes due amount of over $2500 vs a refund of over $500. Its unacceptable. It is doubly irritating to have TT repeated say “there is no bug”. I guess People can’t rely on TT to “Get your maximum refund, guaranteed”.

[njbk20720]

Thank you, Jake. I just ran into this nightmare too - my bank sold my original loan. TT - no excuse. I just wasted 2 hours trying to figure out what happened and how to make it work. I really appreciate your post., Jake. Your workaround worked - not hitting continue. The difference for us would have been over $5k. TT - fix the problem.

[Tustin]

Folks,

Just an FYI this problem persists for the 2020 returns. I am using the desktop application and it has been a real nightmare, I could of studied taxes and completed the forms long-hand in the time it has taken me to talk with TT do research etc. In my situation, I sold a home late last year and purchased another, and even my new loan sold the mortgage in the first month, so I have a total of five (5) W2s. I have entered zero into the mortgages that have been paid off, but in my situation my total loan amount exceeds 750K (by a little) and as soon as the 750K is exceeded it disallows all the mortgage interest deduction and gives me only the standard deduction. I have been told several things but none of them seem to make sense or accurately solve the problem.

Any help is appreciated.

[Cynthiad66]

First, adjust your total mortgage down to the $750,000.00.  Also, adjust the interest down to the amount that would apply to $750,000.00 loan amount.

How much mortgage interest can you deduct in 2020? For the 2020 tax year, the mortgage interest deduction limit is $750,000, which means homeowners can deduct the interest paid on up to $750,000 in mortgage debt.

The IRS lets you deduct your mortgage interest, but only if you itemize deductions. You can't deduct the principal (the borrowed money you're paying back).

In addition to itemizing, these conditions must be met for mortgage interest to be deductible:

• The loan is secured, which means the lender has some kind of guarantee of payment, usually in the form of property. If a borrower defaults on payments, the lender can seize the property that’s securing the loan. If you’re buying or refinancing a home, especially if it’s your first home, the loan is usually secured by the home you’re buying or refinancing.
• The home with the secured loan must have sleeping, cooking, and toilet facilities.
• The debt can’t exceed $750,000 (or $1,000,000 if the loan was taken before December 16, 2017) in order to get the full deduction.
• You or someone on your tax return must have signed or co-signed the loan.
• If you rented out the home, you must have used the home more than 14 days during the tax year or 10% of the number of days you rented it out, whichever is greater.

Mortgage interest is usually reported on Form 1098, Mortgage Interest Statement. After you enter your 1098 in TurboTax, we'll ask a series of follow-up questions to make sure you're qualified to take the deduction.

For tax years 2018 through 2025, you can only deduct the interest from the amount of your loan that was used to buy, build, or improve the home that it’s secured by.

If you’ve ever used part of this loan to pay for things other than this home, you cannot deduct the interest from that amount of the loan, even if the transaction didn’t take place this year.

Don’t worry, we’ll help figure out what amount of interest you can deduct.

Examples of common ways you might have used this money not on your home include:

• Making a down payment on a different home
• Funding improvements on a different home
• Making a payment on a different loan or debt
• Having miscellaneous large purchases

Example: John took out a home equity line of credit on his home on Tuberose Street for $40,000. He used $25,000 to remodel his kitchen and bathrooms in his Tuberose Street home, and $15,000 as a down payment on a second house on Snowdrop Lane. He can only deduct the interest he paid on $25,000 he used to improve his Tuberose Street home.

You cannot claim a mortgage interest deduction unless you itemize your deductions. This requires you to use Form 1040 to file your taxes, and Schedule A to report your itemized expenses. The interest payments and points you pay are combined with all other deductions you claim on Schedule A; the total of which reduces your income that is subject to tax on the second page of your tax return.

[Tustin]

Thank you for the reply and in concept that makes sense - still a bit perplexed why the TT software doesn't pick up on this. My only other question - I can reduce the amount to 750K, no issues but what is the calculation to reduce the interest. I could do something like - I reduced the principal by 5% percent therefor the interest would be 5% less but not sure that is accurate.

Last question (guess I had two) for the mortgages that are paid off I will enter a zero in box 2 - but at the end of the taxes when TT does a check it asks for an amount in the "beginning balance" box - what do I put there?

[Cynthiad66]

If there is a refi and there was an outstanding mortgage principal listed in both of them on Line 2 on the 1098. When you do 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. 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". Once you change one of them to zero (the one that was paid off by the refinance) then it should no longer pop up with that error at the end when you go to file. 

Yes you have the right concept for reducing the mortgage interest.

TurboTax is working to correct this now but with all of the changes due to Covid legislation, they are swamped.  It will be corrected eventually but this work around has been working.

[jake93]

Why wasn’t it fixed early last year (pre-covid) when everyone was reporting the problem? It was a problem in January 2020 if not earlier. It is very frustrating to pay for software that doesn’t do the job!!

[elsiecpany]

Yes seem to be having the same problem in 2020. If this was a problem in 2019 why was it not fixed for 2020.  I also have two 1098 forms. One home sold and another purchased late in the year. I entered all the information as asked for including the home sale information. The the second mortgage balance is over 750,000, but the limit should only apply to that mortgage.  Where can I see the actual calculation of the limitation? TT does not seem to be calculating correctly.  Why should I have to work a round a programing error.  I paid TT to do that. Fix this now.

[jake93]

@Cynthiad66 Why didn’t they fix it last year, before “all the changes due to Covid legislation”? TT has been saying there is no issue and now they are using Covid as an excuse to be selling sub-par software. 

After 10 years, it’s time for me to change tax preparation software. 

[Tustin]

I ended up manually manipulating my return after researching extensively. It is frustrating, what is even more frustrating is the so called TT experts. There were some good ones and some bad ones, but no one that could solve my problem completely. Even more frustrating was I did get on with a solid person who followed up on email and with calls. However, you can't call the people back and her messages were "reach out if you need more help" well you can't respond to the people directly... It was all too complicated.

For the record, I did painstakingly enter my information int H&R block online tax program and it caught and solved the mortgage interest right away...

[JamesG1]

Some TurboTax customers are experiencing an issue with their home mortgage average balance. This can cause the home mortgage interest to be incorrectly limited.  This may be affecting your tax return.

Please sign up for email notifications when an update related to this issue is available.

See this TurboTax Help.

[Ilikeowls]

That's a robotic cut and paste answer that is tone deaf. There is a calculation error for multiple 1098's. It adds the principle amounts together which is wrong! You have to average the principle over each month. For  a loan with only a December payment, you get to use zero for 11 months. So instead of a 1,000,000 principle, it is 1,000,000 divided by 12. So no limitation applies. That's in the IRS guidance for how you can choose to calculate the average principle.

It's super easy. Get it together! Tax ACT works, and I'm about a day from just filing with them despite being with Turbo Tax since I owned an ancient MacPlus.