Multiple 1098s due to mortgage being sold and a home purchase

[Anonymous]

TurboTax has been an absolute PITA this year. How difficult is it to handle multiple 1098s? Here is my situation:

1. In 2020, I Refinanced Mortgage with lender A that was originated in 2016 with some other lender..
2. In 2021, Lender A sold mortgage to Lender B
3. In 2021 December I bought a house from Lender C. Rented out the old home on Dec 26th so less than 7 days. 
4. In 2022, I got 3 1098s.
   1. 1098 from Lender A for old home
   2. 1098 from Lender B for old home
   3. 1098 from Lender C for new home

How do I handle this situation in TurboTax? All forum topics are referring refinance. I did not refinance in 2021.  The workflow is super confusing.  I may have to go to a CPA to get this done this year and I will never use TurboTax again. This is horrible. Been a customer for 13 years. I hate this.

I am using dekstop so I had to pay beforehand. May I get a refund and $$$ for my lost time dealing with this abomination of a software?

[RaifH]

To report the mortgages on your old home, you may combine the two 1098s into one. Report the Outstanding Mortgage Principal in box 2 and Mortgage Origination Date in box 3 from the old loan. Add the numbers in box 1 to determine your total interest paid as well as any property taxes, points, or mortgage insurance premiums that are reported. Report this 1098 as not the original loan for your second home. Answer Yes it was refinanced and No, you did not take cash out assuming that in 2020 you solely refinanced and did not take cash out of the home. 

For the new mortgage, you're going to have to outsmart the system. Report this one as the original loan for your primary home. Report all amounts as they appear except for Box 2, Outstanding Mortgage Principal. The IRS allows you to take the average of all your monthly statements to determine your mortgage principal. Your principal in January through November is 0 and for December it is what is reported in Box 2. You can divide the amount in Box 2 by 12 to determine your average for the year. Report this as your Outstanding Mortgage Principal. 

Once you report the new loan with a reduced outstanding mortgage principal, TurboTax will calculate the deductible mortgage interest and properly apply the limits based on the age of the loan and the outstanding amount due. If you are above the limit, TurboTax will ask for the end of the year balances to determine the average balance for the year. It will also ask if the original loan was entered into prior to December 15, 2017. Answer Yes for your first home. For the second home, enter the same outstanding mortgage principal you calculated as the end of the year balance. 

Since your old home was used as a rental for less than 15 days, you do not have to report the rental income, nor do you have to allocate the mortgage and taxes. In future years if you maintain this property as a rental, Form 1098 will not be reported here but instead in the rental section of your return. The outstanding principal on this home will no longer count against your deductible mortgage limit for a personal deduction. 

[Anonymous]

I don't think this is true. Let's say I have a mortgage principle of $1,200,000 on my new home that I purchased in December 2021. Are you saying that I can enter it as $100,000? (1,200,000 divided by 12) It doesn't sound right.

[JillS56]

No, that is not what @raifh is saying.  You need to combine the 1098s from Lender A and Lender B and enter them as one 1098.   To properly enter the interest and the 3 1098s follow these steps:

1. Add the interest from Box 1 of the 1098s from Lender A and Lender B and enter this amount for the Box 1 amount .
2. For Box 2 Outstanding Mortgage Principal enter the amount shown in Box 2 of Lender B's 1098.
3. For the Origination Date use the date shown on Lender A's 1098.  
4. If the 1098s show points or mortgage insurance premiums report those as shown.  However, if both 1098s show these items, make sure that you are not duplicating amounts.   For points, you can compare that to your closing or settlement statement for the loan.  
5. Report this 1098 as not the original loan.

For the second home that you purchased and rented for 7 days in December 2021, you can report on your Schedule A because you only rented for 7 days in 2021.  However, reporting this on Schedule A may put you over the $750,000 mortgage limit and cause you to lose a portion of your mortgage interest.  

An alternative solution would be to report the rental income and 1098 on a Schedule E.   This may cause a loss for 2021, but you will get the full deduction of interest.   The loss will most likely be a passive loss.   What this means is that the loss will carry forward and when you have income on the rental property, the loss can be used to offset the income.   In other words, you may not see any effect on your 2021 taxes.