TurboTax Home and Business not counting mortgage deduction

[JoeSqee]

Hi! I need help. We refinanced our mortgage in 2020, and TurboTax is not counting the interest we paid on both the old and new mortgage. The strange think is in the Deductions and Credits page it shows the total amount of the interest we paid two mortgages as a deduction. But in the summary screen you see when you hit 'done with deductions' it is only showing about half of our interest paid. We are missing out on several thousands of dollars in interest. I think I'm putting in the info correctly from 1098 forms from the banks. We paid off the original mortgage and a HELOC totaling about $700k with the new mortgage, that was for $800k. We are using the extra cash for home improvements. I wonder if I'm hitting the cap on mortgage interest ($750k), but that doesn't seem correct. We paid interest on the first mortgage and HELOC from Jan 1 to July 31, and then paid interest on the new mortgage from Aug 1 to Dec 31. Nothing I do seems to fix the error. Any help would be greatly appreciated. Thanks!

[JoeSqee]

I should mention the original mortgage was taken out in 2016, before the change in the law on interest. 

[CGiltner]

This is what Turbo Tax says about Home Debt Originating after December 15, 2017
The deduction for interest on home debt originating after December 15, 2017 is limited to the interest on $750,000 of debt ($375,000 for married filing separately). Enter the loan information for up to five qualified loans. The program will determine the average loan balance and will allocate interest to that loan based upon your entries.

I noticed on page 2 of the  Ded Home Mort (Sched A Deductible Home Mortgage Interest Worksheet) form, that it was showing my average balance as the sum of both of the loans (the original + the refinance).  This is wrong!

Based on what you said about the original and refinance, your average may be reflecting as  $1.55mil ($750K+$800K) , rather than $775  [($750K+$800K)/2=$775].  Since the average is used to determine what percentage of interest is deductible (since any cash out was for home improvement), it may be reducing your interest deduction by 48% ($750K/$1.55 mil) instead of 96% ($750K/$775K=96%).   I haven't figured out how to correct this, but, was able to manipulate some of the data in the second section of Part I, "Home Debt Originating after December 1, 2017" to drop my average balance below the $750K threshold which gave me 100% of my interest deduction.  Other posts confirm that this has been an issue since 2019, so I would recommend contacting Turbo Tax for assistance.  

[CGiltner]

I should add, for those whose average balance is less than $750K, that the Ded Home Mort worksheet can maybe be deleted since the instructions say it's only needed in these circumstances:

1. The mortgage or home equity line of credit was not used to buy, build or improve your primary or second home

2. Debt taken out after December 15, 2017 totaled more than $750,000 ($375,000 if married filing separately).

2. Debt taken out after October 13, 1987 and prior to December 16, 2017 totaled more than $1,000,000 ($500,000 if married filing separately).

[JoeSqee]

Thanks for your info. I think you are correct, or at least in the ballpark. I'm looking at the forms, Schedule A, lines 5-12. On that form there is a Mortgage Interest Limited Smart Worksheet. On part A of that worksheet, it says '1 - Home mortgage interest and points reported on Form 1098: $21553. 2 - Limited amount to report on Schedule A, line 8a: $11,420. 

 This has got to be the problem. It is incorrectly limiting the mortgage deduction. I can click on 'quick zoom' to 'Deductible Home Mortgage Interest Worksheet'. But I'm not sure what to do with that worksheet. I downloaded the worksheet from the IRS website so I'll see if I can make sense of it. Thanks again. If I figure it out I'll update this post.