Multiple 1098s due to mortgage being sold

[littlewing1208]

I found a thread here on this topic that had a lot of replies but no resolution.

I bought a house in 2020, it was sold 5 months later to a different mortgage servicer.

The Box 2 and 3 are the same on each 1098 (original loan amount and original close date).  The 1098 where the mortgage was sold shows a non-blank acquisition date.

If you enter all of this as two 1098s into TurboTax (along with the different amount of interest paid to each of the servicers, it doubles the loan amount, which is incorrect.  So if the original loan was 750k, it thinks you took 1.5M of loans and only gives you 50% deduction on the sum of the two interest paid values (incorrect).

The 'workaround' is to put $0 in box two of the original mortgage servicer and $0 as the end-of-year balance on that same servicer to trick TurboTax into thinking that you don't have two loans.  Obviously this is not the intention by TurboTax or the IRS.

What is the correct way to input this (very common) situation into TurboTax?

[Irene2805]

You are correct - On the 1098 entry screen for the original lender, the outstanding mortgage principal (box 2) should be zero.  They sold the loan, so there is no longer an outstanding principal balance.

[littlewing1208]

To confirm, are you saying that my original servicer’s 1098 is incorrect and should have box 2 as 0? Or that from a TurboTax perspective, it should be I put with box 2 as 0? If the latter, TurboTax should probably update their documentation/help to denote this (or have an extra question to clarify this situation so that multiple 1098s for the same loan don’t get counted as multiple loans.

I feel like multiple sources say that box 2 and 3 are the same each time the loan is sold to a new servicer.

[AnnetteB6]

Yes, your original servicer has made an error on the Form 1098 by including an amount in box 2.  

The IRS instructions for completing Form 1098 state that box 2 should be the amount of outstanding principal on the mortgage as of January 1, 2021.  If the loan was no longer being serviced by that company, there would be no outstanding principal on the mortgage that was still owed to that company.  

Your entering '0' into box 2 in your tax return is the correct way to handle the situation.

@littlewing1208

[littlewing1208]

Box 2 for tax year 2020 is the outstanding loan balance on January, 1 of 2020 (not 2021) or the original loan amount if the loan originated in 2020, so I think the 1098 is technically correct according to IRS definitions.

[JohnB5677]

Per IRS instructions Box 2: 

• Shows the outstanding principal on the mortgage as of January 1, 2020.
• If the mortgage originated in 2020, shows the mortgage principal as of the date of origination.
• If the recipient/lender acquired the loan in 2020, shows the mortgage principal as of the date of acquisition.

You should contact your lender to confirm the contents of Box 2.  This may be used on your taxes if you re-finance, or if you change mortgage companies.