@MB232 wrote:
Would the small amount of interest for the truck payoff be included in the interest paid on the 1098? Do I need to calculate that? Assuming that part wouldn't be deductible?
I can't help with how Turbotax calculates the interest, but I can tell you what should happen (and what your son will be audited on).
If, for example, 95% of the principal was used to "buy, build, or substantially remodel" the house, and 5% was used for something else, then 95% of the mortgage interest is deductible. (Or whatever the percentage is.) The entire old balance can be considered to be to "buy, build, or substantially remodel" the house, assuming it was the original purchase mortgage and was only used to buy the house. But if the former mortgage included other funds, you have to include that fact in your calculations.
Points are considered deductible interest (if they are real "points", see discussion later) but on a refinance, they must be spread out over the life of the loan. And you have to apply the same percentage. So if 95% of the interest is deductible, then 95% of the points would be deductible, spread out over the life of the loan. For a 30 year loan, that's 360 months, so you figure out how much in points can be deducted based on how many payments he made in 2024 (about $26 a month if we assume $10,000 and 95%). He will need to keep track, and manually add this to his tax return each year, because it will not be included on the 1098.
Note that whenever this loan is paid off (by selling the house or refinancing again), he can deduct the remaining points then, so keep track. (Unless he refinances with the same bank, in which case he adds the old unused points to the new points and restarts the clock based on the length of the new loan.)
Points are considered mortgage interest if they are based on the amount of the loan and not designed for anything else. For example, if there is a "loan origination fee" which is a flat $1000, that is not deductible points. Fees for bank attorneys, title search, and other fees are not points. Only a fee that is a percentage of the loan and not used for any other purpose.
