If my HELOC is from a different bank (not my mortgage lender), should I consider this 1098 to be an original loan?

[leaylamartin]

"Is the 1098 you're working on now, the most recent for your loan?"  

"Is the original loan you used to buy your property?".


In July 2020 I  pulled cash on a refinance of my primary residence from lender A.  Then, in December 2020 I got a HELOC from lender B. I took the cash from the refinance and the cash from the HELOC and used it as a down payment toward the purchase of a second home, from lender A.


That being said, when entering the 1098 from lender B for my HELOC, do I answer yes or no to the above two questions? ("is the 1098 you're working on now, the most recent for your loan" ?"Is the original loan you used to buy your property")?


 I am aware that none of the  the mortage interest for any of these 3 1098's are deductibe because I used the funds on a house other than the home they are secured by- So am I wasting my time by entering in my 1098's in this section? Or is it still necessary to enter because all 1098's are reported to the IRS?

[NCperson · Accepted solution]

@leaylamartin - personally, I wouldn't even enter them.  They are potential deductions - the IRS won't care if you don't take a deduction, even if reported by the lender to the IRS.... what the IRS does care about is 'Income" - if you fail to report income that your employer, brokerage company, etc. reports to the IRS, that is a whole different matter. 

Since you know these HELOCs are not tax deductible, I'd just put the paper in a drawer and move one....

however, the interest on the "cash out mortgage" IS deductible, up to the "aquisition debt".  the interest related to the cash out portion is not deductible.  Let's say the original mortgage was $300,000 and had amortized down to $260,000 when you took out a cash out refinance mortgage for $400,000 at 4% interest.  the 'aquisition debt is $260,000 (and will remain so until the mortgage balance drops from $400,000 to below $260,000), so 4% times $260,000 (assuming the mortgage was outstanding for the entire year) is tax deductible.  the interest on the remaining $140,000, which represents the cash out and beyond the aquisition debt is not tax deductible as it was not used to improve the current home. 

[leaylamartin]

Thank you! So even though these are reported to the IRS by the lender- Im not required to enter my 1098 information anywhere on my return? (yes, I know....im a rookie)  🙂 Thanks again for the help!

[NCperson · Accepted solution]

@leaylamartin - think of these situations..... lenders report the interest to the IRS, but the taxpayer takes the standard deduction (which means they don't report the interest)..... happens all the time