You can get the right results for both federal and state by entering the mortgage interest using the method below.
What if I have more than two 1098s?
You should combine all of the 1098s directly related to the home mortgage and enter it as one 1098. A sale or refinance of mortgages is a perfect example of when this will be the best action. The key is that all of your mortgage interest is included with your tax return if your outstanding principal loan balance is below the maximum of $750,000 (or $1M for grandfathered debt incurred on or before December 15, 2017). And as you indicated, all loan proceeds were used to improve your home. Keep all of your Forms 1098 with your tax return for the details.
Add each box that has an entry and enter it in the same form (one form) with the mortgage interest.
NOTE: The outstanding loan balance should be the actual loan balance, do not add that together from each form. Use the most recent lender's loan balance when requested for that entry.
For more information please see IRS Publication 936.
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[Edited: 02/17/2022 | 10:00a PST]
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