How do I report a refund from Wells Fargo Home Mortgage for a mistake on rate lock extension fees I paid that I shouldn't have back in 2015?

[rjs]

Did you claim a deduction for the fee on your 2015 tax return - perhaps by including it in your itemized deduction for mortgage interest on Schedule A? If you didn't deduct it in the year that you paid it, you don't have to report the refund.

How did they pay the refund? Did they send you a check, credit it to your 2018 mortgage payments, or something else?

Did they send you any kind of 1099-series form showing the refund? If so, what form, and which box of the form is the refund in?

[mikenjean]

I looked at my 2015 taxes, specifically the itemized deduction for mortgage interest on Schedule A. It is a large amount, $1750 more than the amount listed on Form 1098 under mortgage interest in Box 1. I don't know how to figure out if I claimed the deduction for the fee, but I expect I did by the large amount. (I just followed the questions in Turbo Tax, and I have notes to show that I called the bank to see how much of the closing cost expenses were deductible.)

They paid the refund in a check sent to me.

They didn't send any 1099 form of any kind, just a letter with the check.

[mikenjean]

Correction, on closer investigation, the amount listed on Schedule A under mortgage interest is exactly the amount of the old loan (before refinancing) and the new loan amounts listed on Form 1098 Mortgage Interest Statement. Does this mean I likely did not deduct the rate lock extension fee in 2015?

[rjs · Accepted solution]

From what you said in the comments it sounds like you did not claim an itemized deduction for the rate lock extension fee in the year that you paid it. That means that the refund of the fee is not taxable income, and you do not have to report the refund on your tax return.

[paulovillamoro]

What about the interest and small compensation from the refund of the rate lock extension fees?

[jda5333]

Is the interest and the compensation for time we did not have the money taxable ?

[DaveF1006]

To clarify, is the refund reported to you s taxable income? If so, on what form?

[Lish Sturdi]

I'm new to using this but I saw your question about what form it was on when I was trying to find the answer to this.  For my client, it is just on a form 1098 reporting the interest and then attached to that is just a document or letter from Wells Fargo giving the amount for refund of the rate lock extension fee and then a line for "compensate you for the time you did not have these funds".  The loan was back in 2004 but I found that he did deduct the interest and deducted "part" of the rate lock extension.  With that being said, should I net the current year mortgage interest with this amount of refund or show the whole amount of refund as income.  Then, would I show the "compensate you for the time you did not have these funds" amount as other income?

Any help is appreciated.

[GeorgeM777]

Yes, net the current year mortgage interest if the refund relates to your mortgage interest.  A refund in this context is just a return of your funds and thus would not be income but would offset your mortgage interest in an amount equal to your refund.

The funds given to you as a form of "compensation for your time" is income and can be reported as other income.  Although, you might also report this as interest income because it was given to you based on a time period during which you did not have access to the funds.  It may be easier to report the income as interest.  Because you did not receive a 1099-INT, you will probably have to indicate in TurboTax that you did not receive this form, but you can add all of the other information you would if you had a 1099-INT, such as payor and amount. 

If you decide to enter this as other income, follow these steps: 

In TurboTax online,

1. go to Income & Expenses,
2. scroll down the page to the last item Less Common Income,
3. select Miscellaneous income,
4. then from the list select Other reportable income.  Again you will have to enter the amount you earned plus a short description of what these funds represent. 

Line 8 on the Form 1040 is the line for other income.  If you are using TurboTax Online, here are the steps to follow to preview your Form 1040, including line 8:

       Open or continue your return.

1. Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
2. With the Tax Tools menu open;
3. Select Tools.
4. Next, select View Tax Summary in the pop-up.
5. Then Preview my 1040 in the left menu.

@Lish Sturdi