This article will help you apply home mortgage interest rules, calculate mortgage interest deductions and their limitations, and input excess mortgage interest amounts into Schedule A.
When excess home mortgage interest rules apply
- The excess mortgage rules apply when the taxpayer's home acquisition debt exceeds $1,000,000 ($500,000 if Married Filing Separately) or the taxpayer's home equity debt exceeds $100,000 ($50,000 if Married Filing Separately).
- The existence of grandfather debt (pre-1987) affects the determination of excess home acquisition debt.
- When the taxpayer has mortgage interest of $50,000 or more, a diagnostic is currently issued informing the preparer that the home mortgage limitations may apply and that amounts may need to be manually limited.
- Input fields are provided at the bottom of the Schedule A screen for calculating amounts.
- For information regarding a refinanced home, see Entering a Refinance in the Excess Mortgage Interest section in the Itemized Deductions screen.
- For more information on home mortgage interest rules, see Publication 936, Part II, Limits on Home Mortgage Interest Deduction.
Calculating excess home mortgage interest deductions
- When the taxpayer is subject to excess mortgage limitations, points are subject to limitation as well.
- The percentage on line 11 of the Worksheet to Figure Qualified Loan Limit and Deductible Home Mortgage Interest should be applied to points as well.
- When points are entered in the excess mortgage input section, a worksheet prints out showing the calculation of deductible and excess points.
- Calculating amortized points as part of deductions:
- To enter amortized points:
- Go to Screen 22, Depreciation.
- Under the section Asset Information, click on the Form field and choose Schedule A (points) from the dropdown menu.
- The otherwise deductible amount of points is multiplied by the ratio on line 11 of the Pub 936 worksheet.
- The result is included on Schedule A, line 12.
- An informational diagnostic is generated informing the user that the amortized points were subjected to the percentage.
- If the amounts don't flow correctly:
- Go to Screen 25, Itemized Deductions
- Under the section Excess Mortgage Interest, if an override is entered in the Average Balance field, the amounts won't flow correctly. Remove any override in that field.
- To enter amortized points:
Entering excess home mortgage interest into Schedule A
- Go to Screen 25, Itemized Deductions.
- From the left sections, select Excess Mortgage Interest.
- Enter information for up to 4 loans.
- The input within the program is currently limited to 4 loans. To input more than 4 loans, see Schedule A Excess Home Mortgage Interest with More Than Four Loans.
- Check the Worksheets only checkbox to have Lacerte calculate the Excess Mortgage Worksheet for the amounts of allowed deductible interest and expense and NOT carry the amounts to the respective forms or schedules.
- In the field Total principal paid, enter the amount of principal paid on this loan in 2021. The entry is used to compute the ending balance of the loan, which is then used to compute the average balance of the loan. The average balance of the loan is needed for the respective types of debt on lines 1, 2, 7, and 12 of the Worksheet to Figure Qualified Loan Limit and Deductible Home Mortgage Interest.
Note: If the loan was paid off during the year, or was paid off through refinancing, enter the final lump sum principal amount paid in Lump sum principal payment (if paid off). Also enter the total amount of principal paid in Total Principal Paid and the number of months that this particular loan was outstanding in Months Outstanding (if not 12). When computing the average balance on a loan that was paid off, the program adds the beginning balance of the loan plus the lump sum principal payment, divides by two, and them multiples by the fraction represented by the number of months outstanding divided by 12.
Beginning Balance: $1,000,000
Total Principal Paid: $1,000,000
Lump Sum Principal Payment: $980,000
Months Outstanding: 6
The average balance is computed as ($1,000,000 + $980,000) / 2 x 6 /12, or $495,000.
Understanding the Excess Mortgage worksheet
What is the Excess Mortgage worksheet?
The Excess Mortgage worksheet in the Individual module of Lacerte is based off the IRS Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest for the Current Year from Pub 936.
This worksheet is calculated using the amounts you enter in the Excess Mortgage Interest section of Screen 25, Itemized Deductions. You should complete all of the applicable input fields.
How does Lacerte calculate the Excess Mortgage worksheet?
I. Average Balance & Allocated Interest Worksheet
First, the program will complete the Average Balance & Allocated Interest Worksheet for each loan entered in the Excess Mortgage Interest section of Screen 25, Itemized Deductions.
|Beginning Balance||This is the amount entered in Beginning of year field.|
|Borrowed in 2020||This is the amount entered in Borrowed in 2020 field.|
|Principal Applied||This is the Total principal paid, or the difference between the Total principal paid and the Lump sum principal payment (if paid off).|
|Ending Balance||(Beginning Balance + Borrowed in 2020) - Principal Applied = Ending Balance|
|Average Balance||([Beginning Balance + Ending Balance] ÷ 2)(Months outstanding) ÷ 12 = Average Balance|
|Allocated Interest||View the Allocation of Interest to Type of Debt and Forms/Schedules worksheet for details.|
II. Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage for 2021 (IRS Pub 936)
Once the program calculates the client's Average Balance & Allocated Interest Worksheet, it calculates the Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage for 2021 (IRS Pub 936).
Part I - Qualified Loan Limit
|1||Average balance of pre-Oct 14, 1987 debt||This was calculated in the previous worksheet using the entry for Home Acq & pre-October 14, 1987 debt on date last debt secured.|
|2||Average balance of home acquisition debt incurred prior to December 16, 2017||This was calculated in the previous worksheet using the entries for the Home Acquisition Debt (proceeds used to buy, build or improve home) subsection.|
|3||Enter $1,000,000 ($500,000 if married filing separate)||N/A|
|4||Enter the larger of line 1 or line 3||N/A|
|5||Add the amounts on line 1 and 2||N/A|
|6||Enter the smaller of line 4 or line 5|
If you have no home acquisition debt incurred after December 15, 2017, or the amount on line 6 is greater than or equal to the line 8 limit, line 6 is your qualified loan limit. Enter this amount on line 11 and go to Part II, line 12. If you have home acquisition debt incurred after December 15, 2017, go to line 7.
|7||Average balance of home acquisition debt incurred after December 15, 2017||This portion of the worksheet only appears if you entered a 1 in the 1=debt incurred after 12/15/17 field.|
|8||Enter $750,000 ($375,000 if married filing separate)||N/A|
|9||Enter the larger of line 6 or line 8||N/A|
|10||Add the amounts on line 6 and 7||N/A|
|11||Qualified loan limit (smaller of line 9 or line 10)||N/A|
Part II - Deductible Home Mortgage Interest
|12||Total average balances of all mortgages from lines 1, 2, and 7 on all qualified homes||This is the total of average balance for Home Acq & pre-October 14, 1987 debt on date last debt secured and Home Acquisition Debt (proceeds used to buy, build or improve home).|
If line 11 is equal to or more than line 12, all of the interest on all the mortgages included on line 12 is deductible as home mortgage interest on Schedule A.
|13||Total amount of interest paid on the loans from line 12||This is the total Interest paid entered.|
|14||Divide the amount on line 11 by the amount on line 12||N/A|
|15||Multiply line 13 by line 14. This is deductible home mortgage interest||N/A|
|16||Subtract line 15 from line 13. This is not home mortgage interest||N/A|
III. Allocation of Interest to Type of Debt and Forms/Schedules
This section shows the total interest, excess home mortgage interest (HMI), and interest deductible as HMI, as well as where you reported the amounts.
IV. Allocation of Interest to Type of Debt and Forms/Schedules
This section shows the total points, excess points, and deductible points, as well as where you reported the amounts.
These worksheets can't be e-filed. If you want to enclose the information on a statement, go to Screen 47, Notes and enter the appropriate information.