Hello - I could use some help making sure I'm maximizing my mortgage deductions appropriately, and filling out the required tax forms to reflect a mortgage transfer and correct mortgage balance.
I sold my primary home and bought a new one this past year. My 1098T form from the sale of my primary house is correct - it shows a mortgage balance of approx. $992k at the beginning of the year, and it was paid off when the house was sold. I obtained a mortgage for my new home using first republic in July of this year. First republic was absorbed by Chase Bank later that year, and I only received a 1098T through Chase - I checked with FR and one wasn't available. While the original loan through FR was $750k, the 1098T form through chase shows an outstanding mortgage principal (box 2) of $748k, not $750k, though the mortgage origination date is correct.
Though slight, this discrepancy creates an issue with the average balance of the mortgages over the course of the year, which ultimately affects the deductible amount of interest I show on my tax filing I’ve gone into CA form 540 to manually adjust these numbers to reflect a beginning mortgage principal of $750k, and an ending balance of $748k for my second mortgage. I calculate an average mortgage balance of $1,245,306 vs. a prior average balance of $1,244,578, which means that I can deduct less of my mortgage interest than the original calculation. This calculation flows into my federal tax forms as well. Can you confirm I’m thinking about this properly?
Secondly, assuming the above is correct, I could use some help ensuring I’m calculating my allowable california interest amount on form 540. I’ve selected “yes” on the boxes saying interest is limited on the federal return, and yes that it needs to be adjusted. I use a 1.1M limit to calculate my interest, and put it in the “Total interest above reported on Form 1098”. Can you confirm this is correct?
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Hello,
Yes, the IRS allows for mortgage interest to be deductible on the first $750,000 of your mortgage for your previous home and current home. Since the the amounts reported on your 1098s yield a total amount over $750,000, you can use the average mortgage balance per the IRS. When entering your 1098s, enter the "not most recent 1098" first, then enter the current 1098 with beginning balance as 0.
Your tax entries/numbers flow from the IRS form 1040 into the CA state return. You can then go to your CA return and make the adjustments to enter an adjustment for the amount over the federal limit, which is $750,000 ($375,00 for married filing separate).
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