home loan interest question

[whalkides]

Hi,

Was hoping for some help around the section that asks if "your home loan interest is deductible?"   It regards to our 1098 form (Only had one 1098)  to which we answered this was a new loan from a refinance.  (we refinanced in 2021)

The first question asked how much much of the loan was used to build, remodel, or repair.  We put $0 here as we used for repairs around the house and furniture type stuff. 

The second question asks:  What was the balance of your loan on December 31, 2022?

This is where we're confused?  Our outstanding mortgage principal on our 1098 box 2 was $202,600.  If you scroll down the 1098 it has a section that says "Principal Balance Activity"

Beginning Balance: $202,600

Principal Paid $4600

Ending Balance $198,000

Is this ending balance of $198,600 the balance of our loan on Dec 31, 2022 then?  

Thanks again for any help! 

[MichaelG81]

Yes, the ending balance is the balance at the end of their reporting period. Go through the interview again, and when you get to a similar page looking like this below, either in online or software version, answer yes. Under the amount to buy, build, or improve, that can be your ending balance of the amount you financed to purchase the home, if you took out extra and used for other things, that particular money cant be deducted. But, if your loan before this was used exclusively to buy, build, or improve your property, and you had and ending balance with your other lender, that is your starting point for the qualified amount, or your ending balance with your other lender if all was qualified mortgage interest before can still be used; just not the amount spent on other than your house like furniture.

[whalkides]

Thanks Michael for the reply.  I appreciate the help.  I'm still very confused on finding out if our home loan interest is deductible?  It was a cash out refinance in Jan 2021 from a house we bought in 2013.  The cash out was 24k I believe of which essentially none was used on the qualifiers for the house.  

You kind of lost me here:  "But, if your loan before this was used exclusively to buy, build, or improve your property, and you had and ending balance with your other lender, that is your starting point for the qualified amount, or your ending balance with your other lender if all was qualified mortgage interest before can still be used....."

We had three 1098's last year.  Wells Fargo was initial lender, into a Ohio Company that did our cash out refinance and then they sold it to Flagstar.  So would I put the ending amount of the Ohio Company 1098  as the amount when it asks "How much of your loan did you use to build, remodel, or repair the property?"  This box just isn't for renovations or remodels?  For which we had basically none.  It would be $200k+ most likely instead of the $0?  Do I have to subtract the cash out part somewhere?

Also, how would I know if the loan amount was claimed last year?  Again we refinanced in January 2021 I believe so it seems weird that we're being asked now if its deductible?  We took the standard deduction last year if that matters?

Thanks again.

[DMarkM1]

You are correct the interest on the part of the loan not used to buy, build, repair the home it is secured by is not deductible.  To get that ratio right answer the following (numbers used are for example only).

After entering the form 1098 information: Box 1 - 10,000  Box 2 - 221,000 

1. Primary home
2. Already deducted the points
3. Yes, most recent 1098
4. Loan is a refinance
5. Yes, proceeds used for something else
6. No, used on something other than home
7. In the first box "How much was used on the home?"  The initial loan amount minus the amount used for something other than the home.   Example, you refinanced and new loan amount is $225,000; you took $25,000 and used on something other than the home.  The box amount will be 200,000.
8. Do not check the paid off box
9. In the bottom box enter the balance of the loan at the end of 2022.  Assume 210,000 in my example.

TurboTax will then calculate the ratio of your qualifying average loan balance (A) / total average loan balance (B) and multiply that ratio by your interest paid.  Continuing with the example.

The qualifying average loan balance (A) is 200,000.  The amount used on the home which has not been reduced since the 25,000 nonqualifying loan has not been paid off yet.  

The total average loan balance (B) is figured by finding the average balance of each loan type and adding them together.  In our example the nonqualifying loan average is (21,000 + 10,000) / 2 =   15,500  added to the qualifying average loan balance 200,000 + 15,500 = 215,500 (B).  

So, (A/B) is 200,000/215,500 = .9280   .9280 x interest paid (Box 1 amount - 10,000) = 9280 deductible interest.