Understanding excess home mortgage interest for individual federal Schedule A in Lacerte

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.

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:
  1. To enter amortized points:
     1. Go to Screen 22, Depreciation.
     2. Under the section Asset Information, click on the Form field and choose Schedule A (points) from the dropdown menu.
  2. The otherwise deductible amount of points is multiplied by the ratio on line 11 of the Pub 936 worksheet.
  3. The result is included on Schedule A, line 12.
  4. An informational diagnostic is generated informing the user that the amortized points were subjected to the percentage.
  5. If the amounts don't flow correctly:
     1. Go to Screen 25, Itemized Deductions
     2. 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.

Entering excess home mortgage interest into Schedule A

1. Go to Screen 25, Itemized Deductions.
2. From the left sections, select Excess Mortgage Interest.
3. 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.
4. 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.
5. In the field Total principal paid, enter the amount of principal paid on this loan in 2023. 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.

Example:

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.