When you pay off an existing mortgage and take on a new mortgage in the same year, how you enter the information for Forms 1098 will affect the mortgage interest limitation calculations. The IRS looks at the mortgage balance at the beginning of the year, or when the mortgage originated, whichever comes first.
To properly report these transactions, Form 1098 Box 2 amount on your new home purchase should be blank. This avoids double-counting your mortgage amount. Be sure to enter the mortgage origination date in box 3.
Box 2 for the paid-off mortgage should be as of 1/1/2021. Otherwise, enter the information from this form as it appears.
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