Mortgage interest on primary homes

[quezroc]

I bought a new primary residence in Mar 2021. The sale of my previous primary home did not close until June 2021. So for about 3 months I owned 2 houses.

1. Is the 1098 interest fully deductible for both houses? (the orig loan amt on the new house is $750K and the orig loan amt on the old house was $500K)

2. When I list them on turboTax, do I list them both as primary residences?

[Vanessa A]

1. Most of it.  You can fully deduct the mortgage interest on both houses except for the interest paid for the months you owned both houses, for those months you could only deduct the interest on the balance up to $750,000.  So if you paid $6,000 in interest for the year on the old house, you would only be able to deduct $3,000 of the interest because your balance would have been greater than $750,000.  For the old house you will just enter $3,000 as your mortgage interest paid. Also, be sure that you enter your outstanding balance on the old house as $0 so TurboTax does not add the two balances together.

2. Yes, you will list them both as your primary homes if they were your primary homes. 

@quezroc

Edited 3/2/22 @ 4:28PM PST

[quezroc]

thanks for your answer. regarding what you said about entering the amount of the old house as $0, is this the screen you were referring to? because it asks for the outstanding loan balance as of 1-1-22 , which IS $0. but it also follows up with asking the balance the day i paid it off, which is $442k.

[Vanessa A]

No, in the online version there was a screen that asked for the balance that does not follow up with the statement to enter the balance on the date you paid it off.  Since you are using the desktop version instead of the online version, you are doing it the correct way.

[quezroc]

1. So in my case with the old house with the 500k loan and the new house with the 750 k loan, let's say the new house was bought Mar 1, and the old house sold Jun 1.

The mortgage interest for the new 750K loan house is $14k, and this would essentially be the interest I can deduct for Mar-Dec. The prorated interest for Jan and Feb for the old house is $4k, and i can deduct that for the time before I got the new house. The remaining interest for the old house for Mar-Jun1 unfortunately is not deductible because of the 750k cap.

So I can deduct: $4k for Jan-Feb and  $14 k for Mar-Dec for a total of $18 K for the entire year.

Is this correct?

2. If the calculation for above is correct, there still seems to be an issue with my TT desktop premium. I entered in all the data as specified, but it's only giving me a $14.1K deduction for mortgage interest, not $18K.

I saw on another thread @https://ttlc.intuit.com/community/tax-credits-deductions/discussion/still-get[product key removed]tible-home-mortgage-interest-worksheet/00/2497987/page/_13 that the software is having problems when there are two 1098 forms, and some community members advised doing the calculations by hand and overriding the entries on the Turbotax form. Is there any chance that Intuit/Turbotax will fix this software error or should i manually change to the correct amount? is there someplace I should call or notify?

[DMarkM1]

This procedure is from table 1 in Publication 936 and is used on the "Ded Home Mort" worksheet in TurboTax.  

The deductible interest is a percentage of your total interest paid during the year.  That percentage is derived by dividing your qualified loan limit which is $750,000, in your case, by your total average loan balances for the year. 

In the example I am seeing, your average loan balances were for the old loan (500,000 + 442,000)/2 = 471000 and for the new loan (750,000 + 737,800)/2 = 743,900.  Totaling 1,214,900.

750,000/1,214,900 = .617335  That is multiplied by the total mortgage interest paid which looks like 12,000 + 14,000) for a total of 26,000

The deductible interest is $16,051
 

Start by deleting all the 1098's you have entered and select "Done" to get back to a clean slate.  Then make the following entries both primary homes.

Add your 1098 for your old loan Box 1- 12000  Box 2-500,000  Box 3- original loan date  box 7 - checked

No points

"Yes" most recent loan for this mortgage

"Yes"  original loan

Add 1098 for second loan  Box 1- 14,000  Box 2- 750,000  Box 3- loan date (3/1/2021)  box 7- checked

No points

"Yes" most recent loan

"Yes" original loan

"Done"

Enter the purchase dates when asked for each loan that should match the box 3 dates.

Enter the final principle payoff and date for the first loan

Enter the end of year or (beginning of 2022) balance for the second loan.

"Continue"

Go to "Forms View"  open "Ded Home Mort" worksheet

Scroll down to the worksheet "Parts I and 2" to see the calculations

[quezroc]

Thank you for the response. However, I took a closer look at pub 936, and it looks like they allow for prorating amounts by the months the loans are in effect (see screenshot of proration example). Unfortunately, your calculation (and the internal form in TurboTax) assumes both my loans are in effect all year.  

From Table 1 instructions from pub 936

[DMarkM1]

The worksheet calculations in TurboTax use the first and last balances to figure the average balance, whether it's 2 months or 10 months doesn't matter.   Using the balances from your mortgage statements each month and figuring the average may result in a different figure if for example you had months of no principle payments or months of large principle pre-payments between the first and last.  However, if the principle payments are steady both methods will end with very close amounts.  

As Publication 936 shows you can use other methods of figuring your average balance on a loan.  In the "forms mode" on the "Ded Home Mort" worksheet you can override the Average Balance entries with your own figures.  Be advised overriding TurboTax calculations will nullify the accuracy guarantee offered by TurboTax.