Box 4 is a repayment of Mortgage Interest that you had paid in the prior year. If you selected Itemized Deductions in 2020, then you claimed the interest as a tax deduction in 2020 and will have to claim the amount in Box 4 of your 1098 as income. If you took the standard deduction in 2020, then you did not derive any tax benefit from the excess mortgage interest that they repaid to you in 2021 and do not have to do anything with the number.
To report your Box 4 amount only if you itemized deductions in 2020:
- In the Federal section of your taxes, under Income and Expenses, scroll down to Less Common Income
- Click Start/Revisit next to Miscellaneous Income, 1099-A, 1099-C.
- Click Start/Revisit next to Reimbursed deductions from a prior year.
- Click the box next to Other Itemized Deductions.
- Enter the amount from Box 4 of your 1098 as Other Reimbursements for Prior Year Itemized Deductions.
To enter your mortgage information for your old 1098:
- In the Federal > Deductions & Credits section of your return, scroll down to Your Home and click Revisit/Start next to Mortgage Interest and Refinancing (Form 1098)
- Add another 1098 or edit an existing one
- Answer the questions and enter or verify the information as it appears on your 1098. Make sure you have both the box 1 amount and the property taxes if they are reported on the form.
- Answer What kind of property is this loan secured by?
- Answer We didn't pay any points .
- Answer No to Let's see if this is the most recent form for this loan.
- Answer Is this the original loan used to buy your property?
For the second 1098, you would do the same except answer Yes in step 6. For Step 7, you would say No to Is this the original loan then Yes to Is this loan a HELOC or a refinance? and Yes to Did you take cash out? If you used the cash for anything besides improving the home, you would answer No to Have you used the money from this money exclusively on the home? You would then answer the follow-up question to determine how much of the interest is deductible. However, this year it will not have any effect at all because you did not pay any mortgage interest on this loan.
Please note that going forward if you took cash out of your refinance to do anything other than substantially improve your house, that portion of the mortgage interest will not be deductible on your new loan.
As for why you are still taking the standard deduction this year even after entering your 1098s, this can be due to a number of factors. Your second 1098 seems like a non-factor since you neither paid mortgage interest nor property taxes on that one. As long as your total Outstanding Mortgage Principal is under $750,000, your mortgage interest should be entirely deductible from the first 1098. Property taxes and other state taxes are deductible up to $10,000. Once you enter all your itemized deductions, TurboTax will automatically calculate whether it is more advantageous than your standard deduction.
