Four 1098s, refinance involving primary and secondary home, and mortgage transfer issues.

[rabc3rd]

We are only getting 62% of our expected mortgage interest deduction in Deluxe TurboTax.

After researching IRS publication 936 and discussing this with a CPA, I should get 100% of my mortgage interest deduction.  TurboTax is only allowing a partial deduction.

1. I enter my 1098s for my primary and secondary home (dated 12/31/21).
2. I enter my 1098 for refinance loan (new mortgage with different company) which transpired 1/22. The refinance paid off the primary and secondary home mortgages. It is secured by just the primary home.
3. I enter my 1098 for the mortgage transfer which transpired on 7/23.

We are below the maximum mortgage balance allowed.

We've read this:  How do I handle multiple 1098 mortgage forms? (intuit.com) 

PS-I've been using TurboTax for over 30 years and this is the FIRST time I've been 'stuck'!  🙂

[PatriciaV · Accepted solution]

Are you working on your 2022 tax return? If so, you should enter only Forms 1098 that are dated for tax year 2022.

Other items to check:

1. If your loan was sold to a new lender, be sure you mark the 1098 for the old loan as "not the most recent." Mark the 1098 for the current lender as "most recent."

2. Confirm that all 1098's are marked as secured by your main home and all proceeds were used to buy/improve that home.

3. After you enter all 1098's, click Done at the bottom of the mortgage summary list and answer all questions until you are taken back to the Deductions & Credits screen.

4. If your mortgage interest is being limited, TurboTax will provide you with an opportunity to enter the amount of interest you have calculated and wish to deduct. This overrides the interest calculated by the program.

Finally, TurboTax uses the average of first and last mortgage balances. You may find a better result using one of the other average mortgage balance calculation methods mentioned in IRS Pub 936 under Average Mortgage Balance. 

[rabc3rd]

Patricia, thank you for your well thought out response. Yes, I'm working solely on my 2022 tax return. The first 2 items that you listed are checked and verified. Item 3 is where the issue occurs. TurboTax asks me questions after each 1098 is entered. Based on those answers, it limits the deduction. I believe that, with the knowledge from Pub 936 & the CPA, the entire amount is deductible. Perhaps I'm not answering the questions correctly. Just for clarification, the first two 1098s are for our primary & second home. The third (time sequence) is the refi which paid off the primary & second home loans and is secured solely by the primary home. The fourth 1098 is the loan transfer. I did enter an override for the amount in Sked A worksheet and it 'red flagged' the entry. That concerns me but may be the only way. Again, thank you for your response.

[PatriciaV · Accepted solution]

You need to enter your calculated interest in a different way. Any forms with errors will prevent you from e-filing your return (and invalidate the TurboTax guarantees). This includes numbers in a red font, red boxes, or exclamation points beside the form name in Forms Mode.

Use the step-by-step process if you can. When you click Done at the bottom of the 1098 Summary page, you should at some point be presented with a page that says your interest deduction is limited. This page also presents a box where you can enter the interest deduction you have calculated. This is the best way to override the interest calculated by TurboTax.

Your other option is to delete all 1098s except for the most recent, active loan (with a mortgage balance under $750,000). Enter your calculated interest on this 1098. While this is not the best option, the other information you enter on this 1098 is not reported to the IRS. As long as you can prove your calculations, consolidating your entries in this way is acceptable.