Missing mortgage point deduction after bank transferred loan.

[1Mean442]

When I refinanced my home loan in 2012, the points that I paid were amortized over 30-years. I have been taking this deduction each year since. However, last year after my bank transferred my loan to another lender and I entered that information into Turbo Tax, the deduction for the points disappeared. Shouldn't the points have carried over? Did I do something wrong? How do I get this deduction back? 

[KrisD15]

To clarify, was this simply the loan being transferred and no refinancing done? Did you receive more than one 1098?

[1Mean442]

Yes, this was a refinance of the original loan. I received two 1098's - one from the previous bank and one from the new bank.

[1Mean442]

I'm sorry, I misstated. To clarify, in 2012 I refinanced and took money out. In 2024 the bank transferred the loan to another bank and  I received two 1098's. It was a straight transfer, I did not take any money out in 2024.

[KrisD15 · Accepted solution]

My suggestion is to enter the two 1098 forms as if they were one. 

Tax regulations concerning Home Mortgage Interest have changed over the last several years and Form 1098 doesn't give the software all the information needed to address these sort of issues. 

Enter as one, add the interest but use the same loan balance. Do not report that the loan changed hands. Enter as one 1098 and as if nothing happened with the loan, because really nothing did other than changing the bank holding the mortgage. 

Form 1098 is used for calculations, it isn't entered directly on your return. As long as the amount of interest you claim matches the amount of interest reported on both 1098's, the interest will match the amount the IRS has in their records. 

TurboTax will only see this as a continuation of your loan (as it is) and should continue to carry forward the points. 

Next year you should only receive one Form 1098, so continue with this new Lender as if it was the older one. 

[1Mean442]

Great! Thank you so much for the help.

[wjereb]

Yes, The loan was transferred with no refinancing. I received a 1098 from both loans. But can I deduct all of the points in 2024 as I plan to payoff the mortgage this year.

[MonikaK1]

Yes. As you are entering the information from your Form 1098 in TurboTax, when you see the question, "Did you pay points in 2024 when you took out the loan?", select "We paid points when we purchased or refinanced to improve our main home in 2024" in order to deduct the points. 

If you instead select "We paid points when we refinanced, purchased a second home, or opened a home equity loan in 2022", TurboTax will set the points up to be amortized.

Please see this tax tips article for more information on deducting points.

Please see IRS Tax Topic 504 for further guidance regarding mortgage points.

Generally, the Internal Revenue Service (IRS) allows you to deduct the full amount of your points in the year you pay them. If the amount you borrow to buy your home exceeds $750,000 million ($1M for mortgages originated before December 15, 2017), you are generally limited on the amount of points that you can deduct. The IRS also imposes the following requirements to deduct mortgage points:

• The mortgage must be used to buy or build your primary residence
• The points must be a percentage of your mortgage amount
• The use of points must be a normal business practice in your area
• The amount of points paid must not be excessive for your area
• You must use cash accounting on your taxes
• The points must not be used for items that are typically stand-alone fees, such as property taxes
• You cannot have borrowed the funds to pay for the points from the mortgage lender or broker
• The amount you pay must be clearly itemized as points on your loan documents

If you aren't able to deduct your points in the year you pay them, you may still qualify to deduct them over the life of the loan.

@wjereb