Schedule A - Limitation on home mortgage interest deduction

[france1980]

Hi,

Schedule A lines 8-10 are used to limit the home mortgage interest deduction.  This is basically accomplished by prorating the total interest paid by a ratio of your allowable mortgage limit divided by your loan balance.  My question:  For the denominator of the total loan balance, TurboTax appears to use the year end balance which in this case is the balance as of 12/31/24.  However, Publication 936 directs to use the average monthly balance.  The difference in the limitation result is not overly huge, but is there a reason why TurboTax does not prompt for the monthly average balance and instead uses the year end balance.  Am I missing something?   Thanks in advance for any comments or clarification.  

[AnnetteB6]

The Form 1098 reports the outstanding mortgage principal as of January 1 of the current tax year in box 2 according to the IRS instructions for Form 1098.  After you have entered all of your Form 1098s, if it appears that your mortgage interest should be limited, there will be a follow-up question asking for the ending balance of the mortgage so that the average mortgage balance can be calculated.  This is not the same value that is included on your Form 1098.  You will need to find it on your mortgage statement for the end of the 2024 year or the very beginning of 2025.

This calculation to limit your mortgage interest is done on the Deductible Home Mortgage Interest Worksheet, which you can print as part of your return or see in Forms if you are using a desktop version of TurboTax.  You can see on this worksheet that the average balance is used for the calculation.  

[france1980]

Hi,

Thank you for your thoughtful and thorough reply!  I did locate the Home Mortgage Interest Limitation Smart Worksheet at the bottom of the Home Mortgage Interest Worksheet.  I am using the Windows Desktop Deluxe Version of TurboTax, and accessed this using Forms.

I also observed the entries for Beginning Balance (Line #3) and Ending Balance (Line #6).  Based on your response, I also now understand that TurboTax intends to use the average of the Beginning and Ending balance in lieu of entering and averaging 12 monthly balances.  However, when I calculate the limitation and do the actual math, TurboTax does not use the Average Balance as described above.  The actual limitation calculated by TurboTax used only the Ending Balance.  I therefore believe that this is an error in TurboTax.  To be specific, I can match Acquisition Interest (Line #8) on this form which was used in my tax return to the penny by calculating (Acquisition Debt (Line 7) / (Ending Balance (Line #6) ) * Interest Paid (Line #1).  When I repeat the calculation using the Average Balance, I get different results.  So, thank you so much for your reply, but unless I am missing something I still believe this is an error in TurboTax.