Common questions about Schedule A - Excess Mortgage Interest in Lacerte

Excess home mortgage interest applies when a taxpayer’s mortgage balances exceed IRS limits for deductible home acquisition and/or home equity debt. Lacerte provides an Excess Mortgage Interest input section on Schedule A to assist preparers with calculating deductible vs. nondeductible interest.

This article explains:

• When the excess mortgage rules apply
• How Lacerte calculates deductible interest
• How to enter excess mortgage data (including more than four loans)
• How amortized points and principal payments affect the worksheet

Future changes for tax year 2026

For tax years beginning after December 31, 2025, the One Big Beautiful Bill act will make changes to the make the Deduction for Mortgage Interest by making the $750,000 acquisition indebtedness limit permanent and eliminating the the previous treatment of mortgage insurance premiums as deductible interest. These changes will go into effect in tax year 2026.

Table of contents:

When excess mortgage rules apply

IRS Publication 936 limits deductible mortgage interest based on loan type and balance:

• Home Acquisition Debt Limits:
  • $1,000,000 (MFJ) / $500,000 (MFS)
• Home Equity Debt Limits:
  • $100,000 (MFJ) / $50,000 (MFS)
• Grandfathered Debt (pre‑1987) may affect calculations

Lacerte will issue a diagnostic when:

• Mortgage interest exceeds $50,000, or
• Balances appear high enough to trigger limitation rules.

To assist with proper limitation, Lacerte provides a detailed Excess Mortgage Worksheet.

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Entering excess home mortgage interest in Lacerte

1. Go to Screen 25 → Itemized Deductions → Excess Mortgage Interest
2. Enter loan-by-loan detail (up to four loans)
3. For each loan, Lacerte supports entry of:
   • Lender’s name
   • Form (Ctrl+T)
   • Activity name/number
   • Taxpayer/spouse ownership
   • Interest paid
   • Total principal paid
   • Beginning-of-year balances (in either Home Acquisition or Home Equity sections)
   • Percentage benefiting the home (for equity debt)
   • Months outstanding
   • Lump sum payoff amounts (if refinanced or paid off)

Important: Mortgage-related deductions entered in this section should not also be entered in:

- The standard mortgage interest section of Screen 25

- Screen 29 (Business Use of Home)

- Screen 18 (Rental & Royalty)

How Lacerte computes average balance

The average balance is used in the IRS limitation worksheet. For loans paid off during the year, Lacerte calculates the average balance as:

Average balance = (Beginning balance + lump sum principal payment) ÷ 2 × (Months outstanding ÷ 12)

Amortized Points

If amortized points apply:

1. Go to Screen 22 → Depreciation
2. Set Form = Schedule A (Points)
3. Lacerte multiplies the deductible portion of points by the Pub. 936 ratio.
4. Results flow to Schedule A, line 12.

If amortized points are not flowing correctly, remove overrides in the Average Balance field in the Excess Mortgage section.

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How Lacerte allocates interest (worksheet behavior)

The Excess Mortgage Worksheet allocates:

• Total interest
• Deductible home mortgage interest
• Excess (nondeductible) interest
• Distribution of interest by debt type (acquisition vs. equity)
• Points (deductible vs. excess)

This worksheet cannot be e‑filed but may be attached as a client note (Screen 47).

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Entering more than four loans

Lacerte’s Excess Mortgage screen supports up to four loans. When a taxpayer has more than four loans:

1. Print the Excess Mortgage Worksheet
2. Use it to manually calculate:
   • Average balances for all loans
   • Total interest subject to limitation
3. Combine loan totals in the standard interest input
4. On Screen 25 → Itemized Deductions → Interest section, enter the total mortgage interest & points (Ctrl+E) from all loans.

Important limitations

• Lacerte does not generate additional columns beyond four loans.
• Manual worksheet calculations are required for loans 5+.

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Best practices and diagnostics

Use these quick checks to prevent incorrect excess mortgage calculations in Lacerte:

• Avoid overrides – Overrides in the Average Balance field stop Lacerte from applying Pub. 936 rules. Clear overrides unless a manual adjustment is intentional.
• Verify loan classification – Make sure each loan is marked as acquisition or equity debt. Incorrect classification leads to incorrect deductible/excess interest and triggers diagnostics.
• Check the Worksheets‑only box – If selected, Lacerte calculates values but does not carry them to Schedule A. Uncheck this box if entries aren’t appearing on the return.
• Enter complete loan details – Missing interest, balances, principal paid, or months outstanding may prevent correct average balance calculations.
• Avoid duplicate entries – If using the Excess Mortgage section, remove mortgage interest entered in the standard Schedule A fields, Business Use of Home, or Rentals.
• More than four loans – Lacerte only supports four detailed loans. Use the printed worksheet for additional loans and enter combined totals in the Interest & Points field.

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Related articles

• Excess Mortgage Input for Schedule A
• Entering Excess Home Mortgage Interest with more than four loans in Lacerte
• Understanding Excess Home Mortgage Interest for Individual Federal Schedule A