Yes, if you took the money out of the refinance of the first home to pay for the second home, the mortgage interest is not deductible for that lender. You can verify that in this link. Based on what you told me, here is the best way to report these 1098's.
- Enter the 1098 for your original in your primary residence loan exactly the way it is recorded, including the mortgage balance.
- Enter the second 1098 separately. Put 0 as the original mortgage balance, but record the remainder as it is listed on your form. Be sure to enter the information regarding how you handled the loan proceeds. Remember, this interest is not deductible.
- Enter the second home 1098 with 0 as the mortgage balance. Here you will indicate that this home was sold.
- This should result in a deduction for your original mortgage in your primary, and an interest deduction for your secondary home that was just paid off.
- Let me know how this worked out.
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