Different origination dates

[akonrad4]

I refinanced 2 loans (main mortgage and a heloc used to help buy the home) into 1 loan in 2021 (ill call this loan 2).  Then this loan was sold to another lender (loan 3), which they then sold to another lender (loan 4).   I have five 1098s.  Loan 2  has a different origination date than loan 3 and 4.  3 and 4 use the closing date, and loan 2 uses the funded date.  Neither will change their forms.  
Question 1: Which date do I enter as my origination date to keep this consistent across in turbotax?  Is it okay to enter one date despite differences across the 1098s?

Question 2. Can I just enter all five 1098s and answer the questions or do I need to combine any of them or apply any special treatments?

Question 3.  I paid points for the refinance (loan 2).  But these points aren't listed on loan 3 or 4 1098s.  When I go through the questions for loan 3 and 4, why does turbotax ask me "Did you pay points in 2021 when you took out the loan?"...   If I say yes then loan 2, 3, AND 4 have points (counted thrice).   

Thank you so much!

[RaifH]

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:

1. Answer No to Is this the original loan you used to buy your property?
2. Answer Yes to Is this loan a home equity line of credit or a refinance of a previous loan
3. Answer Yes to Did you take cash out when you got this loan? 
4. Answer No to Have you used the money from this loan exclusively on this home?
5. Answer Help me figure this out to Let's see how much interest you can deduct this year.
6. 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. 

[akonrad4]

I want to sincerely thank you for writing such a helpful response despite the complexity of my questions.  You’re a lifesaver!  

The full heloc was used to pay for the home so that makes that one easier.  However, the outstanding mortgage principle is over 750000 so that complicates things. 

1. I am combining loans 2, 3 and 4:  Do I use the details from loan 2 (refinance) or loan 4 (most recent)?  I understand I sum some of the boxes but for instance which:  lender name? origination date (closing or funding date)?  Do I check the box “the interest amount I entered is different that what’s on our 1098” since the interest is now a sum total?  Do I mark this 1098 as “most recent”?  I figure this might cause some confusion with IRS given they are receiving 3 separate 1098s that I am rolling into 1.
2. I am a bit confused about the outstanding mortgage principle calculation.  I now have form A (original mortgage), form B (original heloc), and form C (combined loans 2, 3, 4). Do I report box 2 as is (including the sum total for form c), when I am filling out the 1098 form section?  Does the calculation you suggested apply to the next section where it asks to enter loan balance as of jan 1, 2022 (mortgage interest deduction limits section)?  If you could help me drill into this calculation and where to apply it step by step I'd be very grateful. 

[RaifH]

1. For Lender name, I would use the most recent lender. Origination date I would use the closing date. I would not worry about clicking the interest amount is different box. Mark this as the most recent loan. 

In all honesty, it's not important, because, in the end, the IRS only gets one number, your deductible mortgage interest. Everything else is collected in the background to fill out worksheets and forms for your records to come up with that one number. The important thing is to remember what you are doing so that in the event the IRS does question the deductible mortgage interest number, you remember what you did to come up with that number. The worksheets in the background will show how it determined the amount of deductible interest from the outstanding mortgage balance that you provide (which I'll get to), but it won't show how you calculated that amount. 

For box 2 for each loan, you will want to calculate it in this way: Take the reported amount in Box 2 for each loan, multiply it by the number of months you had that loan and divide it by 12. For example, if you refinanced in April, you would multiply the Box 2 amount for the original loan and the HELOC by 4 then divide it by 12. You would multiply the refinance by 9 before dividing it by 12. This reduces the average mortgage balance using the IRS method of determining the average by the monthly average rather than the method that TurboTax uses by default, which is taking the average of the beginning and ending balances. Reporting a lower balance allows more of your interest to be deductible. 

To enter all this in TurboTax:

• Original loan
  1. 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)
  2. Enter Form 1098 for the original loan:
     1. Box 1 Mortgage interest - As reported
     2. Box 2 Outstanding Mortgage Principal - See above
     3. Box 3 Mortgage Origination Date - Use the date reported
     4. Enter the rest of the information as it appears.
  3. Answer What kind of property is this loan secured by?
  4. Answer Yes or No to  We didn't pay any points.
  5. Answer No to Let's see if this is the most recent form for this loan.
  6. Answer Yes to Is this the original loan used to buy your property? 
• HELOC
  1. 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)
  2. Enter the 1098 for this loan:
     1. Box 1 Mortgage interest - As reported
     2. Box 2 Outstanding Mortgage Principal - See above
     3. Box 3 Mortgage Origination Date - Use the date on Form 1098 
     4. Boxes 5 & 6 - Use the combined totals from both 1098s
     5. Make sure Box 7 is checked
  3. Answer What kind of property is this loan secured by?
  4. Answer Yes or No to  We didn't pay any points.
  5. Answer No to Let's see if this is the most recent form for this loan.
  6. Answer No to Is this the original loan used to buy your property? 
  7. Answer Yes to Is this loan a HELOC or a refinance? 
  8. Answer Yes to Did you take cash out?
  9. Answer Yes to Have you used the money from this loan exclusively on this home?
• Refinance
  1. 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)
  2. Answer the questions and enter the information from your Form 1098s:
     1. Box 1 Mortgage interest - Add the amounts together from all three 1098s
     2. Box 2 Outstanding Mortgage Principal - See above
     3. Box 3 Mortgage Origination Date - Use the closing date of this loan 
     4. Boxes 5 & 6 - Use the combined totals from all three 1098s
     5. Make sure Box 7 is checked
  3. Answer What kind of property is this loan secured by?
  4. Answer This is a new loan on which I paid points in 2021 to Tell us about any points.
  5. Enter the information regarding the new loan and the points paid. These will be amortized over the life of the loan. You do not need to click the box that says This loan was paid off.
  6. Answer Yes to Let's see if this is the most recent form for this loan.
  7. Answer No to Is this the original loan used to buy your property? 
  8. Answer Yes to Is this loan a HELOC or a refinance? 
  9. Answer No to Did you take cash out?
  10. Once you are back in the Home loan deduction summary screen, click Done.
  11. Enter the original purchase date of the property for each loan (it should be the same for all 3)
  12. Answer Do either of these apply to this loan? If the home was originally purchased prior to December 15, 2017, a higher mortgage limit applies to your home acquisition debt. 
  13. Enter the outstanding loan balance you calculated for the amount on January 1, 2022 in the first field for each loan. Leave the second field blank for the final loan. For the first two, enter the date that you refinanced

[akonrad4]

Thank you thank you!   I think I've almost got it now.  

In your example, if refinanced in April wouldn’t the original be x4, and the refinance be x8 (not 9) since there are 8 more months in the year after the first 4?   To apply this calculation for the refinance do I use box 2 from the original refinance (loan 2) or box 2 from most recent (loan 4)?

For the Heloc, wouldn’t I answer yes to “Is this the original loan used to buy your property?” .. Since all of this loan went to 10% down payment (to supplement the main mortgage).

Lastly, I went through each step carefully but was never prompted for steps 11, 12 or 13.  I went back through the flow and those questions never come up.   When I sum the outstanding principle for each of the three, I get an amount close to what I owed at the end of the year.  This amount is above 75000.  Yes Im not getting the mortgage interest deduction limit questions any more.  Is this a bug?

[RaifH]

The IRS requires the average based on the monthly statements. I take this to mean that any month you carry the loan needs to be included in the calculation. Since you would have the refinanced loan from April through December, I would count that as nine months, just to be a little more conservative. 

If the HELOC were more like a piggyback loan to buy the house, you can answer Yes to that question, as long as no money was taken out for any other purpose but the down payment. 

If steps 11-13 never came up and you are above the $750k limit, you may have to delete everything out and start all over again. Sometimes if you go through and change your answers enough, some of them get stuck in the system and never really come out when you change them again. If it appears you are not getting the appropriate interest deduction, either it is too low because it is not counting all the mortgages or it is just recommending the standard deduction, then I would delete all three 1098s and re-enter them. I recommend logging out and clearing your cache and cookies after deleting them just to make extra sure that there is nothing lingering in the TurboTax worksheets when you go to re-enter them.