ELOC 1098 box 2 is empty but TT requires a number for filing

[dave_l2lp]

My lender says the IRS requires that it be  blank since there was nothing owed on 1/1/20.

[DawnC]

Box 2 on form 1098 shows the outstanding principal on the mortgage as of January 1, 2020.   If the mortgage originated during 2020, shows the mortgage principal as of the date of origination.    If the recipient/lender acquired the loan in 2020, shows the mortgage principal as of the date of acquisition.

[dave_l2lp]

The ELOC originated in 2018...I had paid off the previous balance in 2019 and then used it again on 1/6/20 and other occasions in 2020.  The issue really for me is with TurboTax which requires a value in box #2.  The only way I could get past it was to put $! in the box.  Intellectually I don't get the concept of reporting the value at the beginning of the year and not at the end.

[DIT_me]

I also have been knocking heads with my lender on the HELOC question.  The instructions on the back of the CY2020 Form 1098 clearly state "Box2: Shows the outstanding principal on the mortgage as of January 1, 2020. If the mortgage originated in 2020, shows the mortgage principal as of the date of origination.  If the recipient/lender acquired the loan in 2020, shows the mortgage principal as of the date of acquisition."  Box 3 states "Shows the date of mortgage origination." and Box 11 states "If the recipient/lender acquired the mortgage in 2020, shows the date of acquisition."  Now I'm not a CPA or tax professional but the two words "originated" and "acquired" should spell this out for the entity issuing the Form 1098.

In my case, the HELOC account was opened/originated in early 2016, so that's the date in Box 3 (Mortgage Origination Date) - no argument here.  I wrote the HELOC check in April 2020, thus acquiring the funds during 2020.  As of January 1, 2020, there were no outstanding fund taken against the HELOC, BUT the IRS verbiage allows the lender to instead post the amount acquired during CY2020 in Box 2 and then post that date in Box 11 (Mortgage Acquisition Date).

When you take a step back and look at this systematically, the logic is undeniable.  My question now is how should I address this problem going forward, as I've already exhausted the path of talking with the lender, who has already issued a CORRECTED Form 1098 due to erroneous data posted to Box 10 and failing to place an X in Box 7?  Should I now take it upon myself to enter the CORRECT value in Box 2 (the amount of the HELOC check written for home improvement) and the date of the check in Box 11?

[ReneeM7122]

To handle the HELOC refinance in TurboTax, you'll work on two different sections.

How to Deduct Points

As far as filing taxes goes, claiming a tax deduction for mortgage points is a fairly straightforward process. Mortgage points are considered an itemized deduction and are claimed on Schedule A of Form 1040. Here are the specifics:

• Usually, your lender will send you Form 1098, showing how much you paid in mortgage points and mortgage interest

• Transfer this amount to line 10 of Form 1040 Schedule A
• If any of your points were not included on Form 1098, enter the additional amount you paid on line 12 of Form 1040 Schedule A

How do I record my HELOC interest?

You can record your HELOC interest using TurboTax Deluxe Online edition.

To record your interest, login and press the "Take me to my return" button

1. Select the search button located near the top right of your screen.
2. Type 1098 into the search box
3. Select Jump to 1098 from the results list.
4. Answer the questions on the following screens to record your HELOC.

Mortgage refinancing fees are generally not tax deductible on a personal residence.  You'll need to amortize and take the itemized deduction.  Keep in mind, though, that you can include those costs in your home's basis.  This will help reduce the capital gain when the house is sold in the future.  

What if my refinance loan is immediately sold to a new lender?

When a refinance loan is immediately sold to a new lender, you'll  use the 1098 that you received from the original lender (assuming that is where you got your 1098 from.)  You did not chose to refinance with lender #2; it was an automatic sale of the loan not of your doing, so you don't have to associate the points with them.

@dave_l2lp

[dave_l2lp]

I appreciate all the info I have received in response to my issue but none of the info helps me navigate the issue in my TurboTax return. The HELOC 1098 I received from my lender has BOX 2 left blank because I didn't have a balance until01/06/2020 BUT TURBO TAX REQUIRES A NUMBER VALUE IN THE BOX WHEN THERE ISN'T ONE. I had left it blank but when we did the review it kept coming up as an error WHEN IT IS NOT ONE. I took the liberty in the forms to override the requirement and entered a zero [0]  which an alteration of what was sent to the IRS by my lender.  Except for this issue my return is complete...CAN SOME ONE FROM INTUIT RESOLVE THIS ISSUE...I CAN'T BE THE ONLY ONE EXPERIENCING IT. THANKS.

[KrisD15]

Your Lender is wrong. 

The instructions for the 1098 has been tweaked year after year to try to get the information needed to enforce the recent changes in the tax laws concerning Home Mortgage Interest. 

For tax year 2020, Box 2 should never be zero or blank. 

According to the IRS:

“Box 2. Shows the outstanding principal on the mortgage as of January 1, 2020. If the mortgage originated in 2020, shows the mortgage principal as of the date of origination. If the recipient/lender acquired the loan in 2020, shows the mortgage principal as of the date of acquisition.”

IRS Source

[dave_l2lp]

I've thought they were wrong all along but apparently for the wrong reason...but I'm clueless about what I need to ask for from them.  There was a balance that was cleared in 12/2019 so there was zero owed Jan. 1, 2020, but the HELOC had been active since it was established in 2018 and was drawn from again on 1/6/2020 and that balance continued through 2020 which is the source of the interest paid for the year.

[dave_l2lp]

LenaH can you please take a look at my last post and give me some advice?  Thanks!

[LenaH]

You should enter the amount of the HELOC taken on 1/6/2020 in Box 2, even if it is not shown on your 1098 form. This is required so that TurboTax can figure out the correct amount of interest you can deduct on your return. There is a limitation of mortgage interest deductions with total loans above $750,000 (if originated after December 15, 2017).

I am not sure of your exact tax situation or the total of your loans, but I will explain this further so that you understand why Box 2 is required for mortgage interest calculations and why the beginning balance is required (rather than the ending balance). 

ILLUSTRATION:

Deductible mortgage interest is calculated by taking the loan limit ($750,000) divided by your outstanding loan balance (Box 2). Then, that percentage is multiped by the mortgage interest as shown on the 1098. This amount is then deducted on Schedule A. 

I created a mock-up return for further illustration. As shown in the picture below - the total mortgage balances inputted were 900,000 with 50,000 in interest. 750,000/900,000 is .8333 (as shown on Line 15 below). Then, this is multiped by the mortgage interest inputted to get the total deductible mortgage interest for Schedule A. 

In addition, as per the chart shown in Publication 936 (2020), in order to fully deduct your mortgage interest, it must be under the limit at all times during the year. Generally, the largest balance is at the beginning of the year (Box 2), which is why the information is required for correct calculations. 

I hope this helped answer your question on why you are getting an error for not inputting your beginning balance in Box 2. 

@dave_l2lp

[KL40]

I am having the exact same issue. The problem is that the HELOC account is set up to remain open once it's paid off until you draw on it again. At the beginning of last year, the outstanding balance was ZERO. Partway through the year, we drew on the loan again and paid interest on that.  The value in box 2 on my tax form is (correctly) zero, even though that WAS NOT the highest balance during the course of the year. The only way I seem to be able to get past this form is to enter $1.00, even though that does not match my tax form.  Ideally, there should be a better way to get past this.

[DMarkM1]

If the form reports a zero outstanding balance in box 2 there would therefore be zero interest paid.  You need a principal to calculate interest.  The absolute best way to handle is for the lender to fix the 1098 and put an outstanding amount in box 2.  Below is extracted from page 2 of the Form 1098 instructions.  

Lines of credit and credit card obligations. Interest (other than points) received on any mortgage that is in the form of a line of credit or credit card obligation is reportable regardless of how you classified the obligation. A borrower incurs a line of credit or credit card obligation when the borrower first has the right to borrow against the line of credit or credit card, whether or not the borrower actually borrows an amount at that time.

So this appears to indicate the amount in box 2 should be amount of the line of credit. 

In TurboTax the 1098 information you enter only goes on a worksheet to figure to the deductible portion of mortgage interest paid. Neither that worksheet nor a form 1098 is sent as part of your tax return.  To get the most correct calculations in TurboTax you should enter the amount of your line of credit (or at least the amount you actually paid interest on).  

As long as your average mortgage balances don't exceed one of the mortgage limitations  ($750K for loans taken after Dec 2017 for example) then entering $1 will allow the calculations.  

But if the total average balance of your loan(s) actually exceeded a limitation, then your deduction may need to be limited but may not be as you only entered $1 for the balance.