Since Loans 2, 3, and 4 were not refinances on your part, and just the mortgage being passed from one company to another, I would just report them on one Form 1098. Use the outstanding mortgage principal, the origination date, and the points reported from Loan 2. Add the mortgage interest together from all three loans, as well as the property taxes and mortgage insurance premiums, if any. Since part of the refinance was for a HELOC, if any of the HELOC was used for purposes other than acquiring or improving the home, a portion of the interest would not be deductible. For example, say your new refinance has a $500,000 balance. $400,000 is from the original loan and $100,000 from the HELOC. Of the HELOC, you spent $75,000 on home improvements and the other $25,000 to pay down debt. In that case, $25,000 of the new loan would not be home acquisition debt. To reflect that in TurboTax:
- Answer No to Is this the original loan you used to buy your property?
- Answer Yes to Is this loan a home equity line of credit or a refinance of a previous loan
- Answer Yes to Did you take cash out when you got this loan?
- Answer No to Have you used the money from this loan exclusively on this home?
- Answer Help me figure this out to Let's see how much interest you can deduct this year.
- Enter how much was used for the home in the first field, and the end of the year balance in the second field. In my example, $475,000 would be the amount to buy, improve, or build the home. If you took cash out during the refinance, that would also be non-deductible if it was not used to improve the home.
So now we are down to three Forms, the original, the HELOC, and the refinance. Does the outstanding mortgage principal on these three loans together add up to more than $750,000? If so, it is going to be a little more complicated to accurately report it to maximize your deductible interest. If not, I would report the original loan and the HELOC just as they appear. For the HELOC, answer the questions above in the same way and enter the amount used to improve the home. If you did not use any of the HELOC to improve the home, I wouldn't even include it. None of the interest would be deductible anyways.
If the outstanding mortgage principals add up to more than $750,000 when you report just the three loans, TurboTax will automatically start to apply the mortgage interest limit, unless you originally purchased your home prior to December 15, 2017 in which case it does not start applying the limit until your outstanding mortgage principal reaches $1 million. If this is the case, I would calculate the average loan balance for the year and use that instead of the number reported in Box 2 for each loan. You can determine the average loan balance by multiplying the outstanding mortgage principal by the number of months you had the loan and dividing by 12. For example if you had the original loan for three months before you refinanced in March, rather than reporting the outstanding mortgage principal as it appears on Box 2, I would take that number and multiply it by 3 and then divide by 12. This will more accurately reflect your average loan balance which will make more of your interest deductible.
You do not have to worry about doing this if your loans do not add up to $750,000 because your entire amount of interest is deductible until that point.
