outstanding mortgage principal

[amirshahin]

I'm preparing my 2022 taxes. When I enter my mortgage interest, I get some refund. But as soon as I enter my outstanding principal amount the refund goes away and I'm back to when I didn't enter the interest. Is this an error or new tax law?

[AliciaP1]

It depends on the balance of your outstanding mortgage.  

Per the IRS:

Home mortgage interest 

You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017.

[amirshahin]

Thank you @AliciaP1 for the reply. That's what I thought too. My issue is with Turbo Tax when I enter the amount of Interest, it then shows the deduction which is reflected in the amount owed to Fed and State. But as soon as I enter the Principal in the Outstanding Balance field, it then removes the deductions. My balance is about $700,000 which is under the limit. Even if I enter $1 in that field Turbo tax reverses the deduction, so, I think there's and error in Turbo Tax.

[PatriciaV]

It's possible you are receiving the Standard Deduction so the mortgage interest has only a temporary effect on your refund. But when TurboTax completes the mortgage interest calculations, your total itemized deductions are less than the standard deduction and the refund goes back down.

The Standard Deduction depends on your filing status. Single taxpayers start at $12,950 and Married Filing Jointly start at $25,900. You can see the full list here: What's my standard deduction for 2022?

You can see how this affects your taxes by looking at your Tax Summary. In TurboTax for desktop, open your return and go to Tools >> Tax Summary in the black menu bar at the top (or use Ctrl+T). This summary will show if you are taking the standard deduction, or if your total deductions are over that amount.

[amirshahin]

Thank you @PatriciaV  for the info. However, that is not the problem. I found the issue though. Box 7 in my 1098 is not checked. So, I don't check the box in TurboTax either. However, my residence address is the same as the one that my loan is. So, not sure why the box in 1098 is not check. When I check the box in TurboTax then it properly deducts the interest.