I filed by taxes using TurboTax last year. I received a CP28A notice from IRS stating that my mortgage interest deduction that was used in the filing was incorrect. I went through my 1098 and confirmed I entered the information correctly using TurboTax. The issue was I had paided down a significant portion of principal last year (from sale of another home). Here is a breakdown of my situation: Outstanding principal at the start: 1,995,215. Ending principal: 590,359. Interest paid during the year was: 103,886. TurboTax ended up using First and Last Balance method and computed the qualifying interest for deduction to being 60,254. From what I read online it looks like this might not be correct way to do since the rule shouldn't be applied since I pre-paid more than a month of principal. I found that using weighted monthly average 55,268 (since the pre-payment was done in July). So my questions are 1) What's the right way to calculate the interest deduction for my situation 2) Can I use TurboTax software to file an amendment (if I need to do so)? Kindly advice. Thanks.
