In 'Home Mortgage Interest Limitation Smart Worksheet', 'Were all loan proceeds used to purchase, build..? Option Y or N if loan is sold? For refi what option?

[Mike9241]

for a refi on your principal residence 1) the balance equal to the mortgage balance refinaced would qualify so if you refi'd for more answer N but

2) if all the cash out was you to substantially improve your residence answer Y

3) if no what was the cash out used for.  

if you have a mortgage with X and it's sold to Y that doesn't change its status.

[cjr00777]

I got to this option as the process led to review my deductions & credits.

My initial mortgage was sold after a month. I have form 1098's from both lenders. I refinanced after some months, and I have the form 1098 from that lender as well (total of 3 1098 forms). My refinance was wholly on the balance mortgage and no additional cash was taken or used for any improvements.

The following question is ONLY one which requires answer and the ONLY one editable in the entire Home Mortgage Interest Limitation Smart Worksheet. And its asked only for two of the lenders (the lender who bought my original mortgage and the refinance lender).

What should my answer be for this question: 'Were all loan proceeds used to purchase, build, or improve the home secured by this loan?'

1) For the lender that bought from the originator of my mortgage

2) For the refinanced mortgage 

 Yes or No are the answers allowed.

[DianeW777 · Accepted solution]

You should answer yes.  Based on your information, all loan proceeds were used for acquisition debt.  In other words you did not use any of the money for other purposes such as buying a car or paying off credit cards. 

When you have multiple 1098 forms, it becomes a little confusing. Here are some steps that may help you because entering the document is not a requirement, rather a convenience.  The IRS does not require these forms because they will already have copies. 

You can get the right results for both federal and state by entering the mortgage interest using the method below.

What if I have more than two 1098s?

You should combine all of the 1098s directly related to the home mortgage and enter it as one 1098.  A sale or refinance of mortgages is a perfect example of when this will be the best action. The key is that all of your mortgage interest is included with your tax return if your outstanding principal loan balance is below the maximum of $750,000 (or $1M for grandfathered debt incurred on or before December 15, 2017).  Keep all of your Forms 1098 with your tax return for the details.

Add each box that has an entry and enter it in the same (one) form with the mortgage interest.

NOTE:  The outstanding loan balance should be the actual loan balance, do not add that together from each form.  Use the most recent lender's loan balance when requested for that entry. 

• What do I do if I have multiple 1098s from refinancing my home debt?
• How do I handle multiple 1098 mortgage forms?
• Where do I enter my 1098 mortgage interest statement?