Question

Mortgage interest deduction after refinance

Forum|Forum|4 years ago
March 13, 2022
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Hello, my mortgage interest deduction is not equaling my total interest paid for 2021. I refinanced my loan in 2021 and the loan was subsequently bounced around to various servicers before ending up at its final resting place. Loan is secured by the property and refinance proceeds were only used towards the mortgage principal/interest.

Here is info from the 4-1098s received:

1)Pre-refinance Bank Origination date 5/5/2015, Principal = $956K, interest = 7,833

2)Refinance company Origination date 3/1/2021, Acquisition date 3/01/2021 Principal = $955K, interest = $2,332

3)Servicer company Origination date 2/22/2021, Acquisition date 5/01/2021, Principal = $955K, interest = $6,844.55

4)Final resting place/Bank Origination date 2/22/2021, acquisition date 8/02/2021, Principal $947K, interest = $11,277

Total interest is $28,287, but TurboTax is providing for a deduction of only $24,034. I see that the dates are wonky on the various refinance-related 1098s, but it appears that after "1)", I am only being allowed deduction associated with the new deduction limits of $750K, vs. the refinanced balance of ~ $955K. It appears that because of this, I'm paying > $1.5K in additional federal tax. Does anyone know what is going wrong here and how I can correct it in Turbotax so that I continue to get my full deduction?

R

RaifH

Since you originally acquired the property back in 2015, you are subject to the $1 million limit on home mortgage interest. Therefore, all your interest is deductible.

To enter the forms in TurboTax, only answer Yes to Is this the original loan used to purchase the home? for the first one. For the other three, answer No to this question. For the follow-ups, answer Yes, it is a refinance, and No, you did not take cash out. For the final loan, select Yes to Let's see if this is the most recent form for this loan. Answer No to this for the other loans. Use the acquisition dates for the loans since those seem less wonky than the origination dates.

Once you have all four loans in, select Continue. TurboTax will ask you if these loans were for property you have held before December 15, 2017. Select Yes for all four, since you originally bought the property back in 2015. It will also ask for the ending balance for all four loans. For the first three loans, you can use the outstanding balance of the next loan. For example, the ending amount for the first loan is $955,000 and the ending date is 3/1/2021. For the last loan, leave the end date blank. The ending amount will be the balance on January 1, 2022.

Once entered this way, your entire mortgage interest should be deductible.