Mortgage Interest Deductions on Refinanced Pre-2017 Loan Zeroing out

Forum|Forum|2 years ago
March 26, 2024
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I am having the exact same issue as the post below. Token 1218527

Whats going on with this? If the original loan was taken out before 12/15/17 and the balance hasn't increased due to a cash out refinance, you get a zero deduction. Operator error or software glitch continues?

Bug? Mortgage interest deduction zeroing out

I put in my 1098 information and I can see my tax due decrease. My mortgage balance is just over $1M, but it was taken out in early 2017 before the TCJA reduced the limit down to $750k. In any case, I answered the supplemental questions so TurboTax can automatically adjust/reduce the interest eligible to be deducted (a nice improvement from 2020).

Then TurboTax says I might be qualify for a bigger deduction if the original loan was taken out before 12/15/17 and the balance hasn't increased due to a cash out refinance. This is true for me, so I answer Yes. Then TurboTax recalculates and zeroes out my mortgage interest deduction. (I can see that in the wrap up page when it says the standard deduction is best.) That doesn't make any sense. If I click No, then I can see on the wrap up page that the appropriate amount of mortgage interest is used for my itemized deductions.

Has anyone else seen this?

zomboo

Is this just a matter of the mortgage interest deduction not being enough to itemize? This would cause the the itemized entries on the wrap up page to be 0 because you are getting the standard deduction. Or are you sure the program is wiping out an itemized deduction? Have you looked at schedule A to check what is listed there on line 8a?

Cash PoorAuthor

Thanks for the quick reply zomboo...

It seems to be a hard fail in the software that just isn't being addressed. A Yes/No question either gets you no mortgage deduction (instead of $1M limit) for pre 2017 mortgage or a $750K limit if after 2017. Sample file provided. I hope someone from TT looks at it..

Vanessa A

Thank you for the token. To clarify, did you take any cash out of your loan or was it a refinance to simply get a lower interest rate? Or is it a HELOC?

@Cash Poor

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Winegum

Here is my assessment of the problem: if you indicate that the 1098 is a refi, you are never prompted for the original loan date. TT asks “when was this loan issued to purchase your home.” If you enter the refi date (in my case 2020), TT uses that date to determine the interest cap of $750k. If you try to back date the loan to the original loan date (2014) TT zeros out the deduction altogether. I haven’t paid attention to this in prior years, but I double (actually a dozen times) checked the math and realized the issue in the current version…

gdolan

Warning that the bug is back (or never left). I filled out my taxes about 2 months ago and everything worked just fine. When I came back today to update a few forms that came in late I lost my interest deduction. Seems to come down to how you answer the "Did you use your loan for anything besides paying off the existing loan?" If you answer no, the interest gets calculated as zero. On the plus side, if you answer yes and then say "Yes, I've used this loan only on the home I took it out on," then you can get your interest deduction back and calculating correctly. Quite rough and would have cost me several thousand dollars if I hadn't caught it. Went back through past returns and never had this issue but it's going to cost me a few hours to double check everything now that I know a bug like this has been lurking for years.

Winegum

This problem was corrected in last year’s software after my post, but you are correct, the problem is back again in the home and business version. TT, please fix (again)! Thanks. James