Turbo Tax Computation Error with Mortgage Interest Deduction

[dgrenn]

I am using Turbo Tax 2025 Deluxe.  I have a 1098 statement.  The statement shows interest for a home equity line of credit secured by my 2nd home to help purchase my new main home in September 2025  (I sold my previous main home to my son).   The IRS rules are such that the interest paid on this HELOC should not be deductible.  The 1098 I received has interest shown in box 1.  Box 2 shows an outstanding principal of $0.  This is ok (expected) because this was the outstanding principal of the HELOC on January 1, 2025.  It is not the outstanding principal on December 31, 2025. 

When I enter the numbers in TurboTax as shown on the 1098 and answer all the questions in TurboTax correctly and honestly, the program is allowing the full deduction for interest in Box 1.    This is wrong and will result in underpayment of taxes per the existing IRS rules. 

Now if I alter the amount in box 2 of the 1098 to $1, TurboTax disallows the entire amount of the interest deduction which is the correct outcome.   In fact, it will disallow the deduction no matter the amount entered for Box 2 as long as it is not zero. 

I think your software has an issue which should be corrected ASAP.

[MarilynG1 · Accepted solution]

You're correct that the HELOC interest would not be deductible in your situation.  The IRS is aware that Form 1098 is not always correct, so if you enter either $1 or the amount of first withdrawal of principal in Box 2, it is allowed.  Some HELOC 1098's list the entire amount available for draw in Box 2.

TurboTax does not like 0's, and wants more information.  It's difficult to program for all types of errors on Form 1098's, but since the interest is not deductible, it doesn't affect a Mortgage Interest Limitation calculation, which is what concerns most taxpayers. 

@dgrenn 

[dgrenn]

Thanks MarilynG.  Makes sense.  I’ll just enter $1 and leave it at that.