Not sure if points are being deducted properly

[nothingsknower]

I bought a home in 2022

I have two 1098 forms for the purchased home, one with the original lender, and another lender that the loan was sold to a few months later in 2022. 

I paid 4,099.59 in points, and I can see this amount on the first 1098 as "Points paid on purchase of primary residence". The second 1098 does not have a value entered here. 

I entered both 1098 forms, and I put the points in with the first one, and did not put the points in under the second one. I marked the first one as "no" for "Is the 1098 you're working on the most recent for your loan?"

Having done all that, on the "Home  loan deduction summary", I can see that the interest is listed for both lenders, and I can see that the Deductible Points is listed for the first 1098.

However, when I finish the "deduction and credits" and I see it itemize the various deductions and credits, I don't see the Points listed. 

Messing around on the form, if I go back and enter the points under the second 1098 rather than under the first, it looks like it will then recognize the deduction. 

Is that how I should enter the deduction for the points, under the second 1098? Not sure if I'm missing something, but I wouldn't imagine that it should matter whether or not the loan was sold to another lender. However, it does seem to matter whether I enter the amount under one particular lender or another. 

Thank you!

[PatriciaV]

While your work-around may produce the result you expect, there is a better way to enter these two 1098s and preserve the correct information for next year's tax return.

1. First, delete the two 1098 entries you have made.
2. Now, enter the 1098 for the current lender who purchased the original loan. Indicate that this is the most recent 1098. Answer all questions related to this mortgage, which is not a refinance.
3. Then enter the 1098 for the first lender, including points and all other information. Mark this as NOT the most recent. Be sure you answer any questions regarding the use of those funds and how you wish to handle the points.
4. Continue to the end to save your entries.

Review the result for your deductions to confirm the numbers are as expected.

[nothingsknower]

@PatriciaV 

Hi,

I tried re-entering as you said, but the result was the same. The points on the original loan didn't end up being recognized as a deduction that shows the 2022 (and 2021) deductions and credits. 

[PatriciaV · Accepted solution]

Let's review some of the questions about the original loan (which should have a zero balance).

1. Yes, secured by a property you own.
2. Yes, new loan on which you paid points.
3. Yes, bought your main home with this loan.
4. Enter points paid on this loan.
5. Yes, loan was paid off. (This box appears under the dollar amount of points paid.)
6. Yes, this is the most recent 1098. (Revised instructions)
7. Not a HELOC or refinance.
8. Yes, used this loan only on the home.

For the new loan (which should have an outstanding balance):

1. Yes, secured by a property you own.
2. Yes, bought your main home with this loan.
3. (No points paid on this loan.)
4. Yes, this is the most recent 1098.
5. Not a HELOC or refinance.
6. Yes, used this loan only on the home.

On a test return, the answers above produce deductible points that flow to Schedule A Line 8a.

[nothingsknower]

Good morning, going through the list.

For the original loan:

1. Yes
2. Yes 
3. Yes
4. Yes
5. I don't actually see anything on the 1098 describing it as "paid off", and nothing near where the points are. Below the points is box 7, where it's checked to say the loan was secured by the the same property as my address. I'm also not sure where I would indicate this in turbo tax... would I select the check box below where I entered the Points dollar amount, the checkbox that says "This loan was paid off or refinanced with a different lender in 2022"? 
6. Ok, I edited the selection on this loan to say it's the most recent. 
7. Yes
8. Yes

New Loan:

1. Yes, although I'll note, the 1098 didn't have box 7 checked. Instead it listed the address of the property in box 8. In turbo tax, I left box 7 unchecked, and on the following screen I selected "Yes, this loan is secured by a property of mine."
2. Yes
3. Yes, no points entered into turbotax for this loan, and none listed on the 1098
4. Yes, selected as most recent
5. Yes
6. Yes
7. One other thing I'll note, the mortgage acquisition date was empty on the 1098. I called the lender to get the actual date, and entered it. 

One thing that it did after I entered all of this was ask me to enter the purchase date of the home. Asked twice, once for each lender. For the new loan, I'm not sure if I should enter this as the date the original loan closed, or as the acquisition date that the new lender acquired the loan. 

It then asked "we need a bit more information to wrap up this deduction", and asked the outstanding loan balance as of 1/1/2023 for both loans, and the date when last payment was made for the loan that was "paid off". I entered a final payment date and a "0" outstanding balance for the original loan, and entered the balance as of my final statement for the year for the new loan.

It then takes me to a new screen saying "your mortgage interest is being limited" and advises a review of IRS Pub 936. On the "help me with this" link, I read "After December 15, 2017 - You can deduct the mortgage interest you paid on up to $750,000 in loans for your first or second home". I think I should be good by this standard. I do have a second home which I haven't entered yet. However, the loan for the first and second home, combined, is still below the $750,000. So not sure why this screen is coming up, or what I should do here. I'm guessing it may be seeing the "original" and "new" loan as separate loans with a combined amount that exceeds $750,000. Despite saying it's limited, the dollar amount that it says it has under "our calculations" for 1098 interest is the sum of the interest paid on the original and new loan and the points. 

[PatriciaV]

The mortgage interest limitation calculation section of TurboTax has been revised for tax year 2022. The questions you encountered are meant to assess if your deduction is limited due to mortgage principal balances exceeding that allowed by the tax code.

If you find that all interest and points are included in your deductions summary, then your answers were correct. This may change when you enter the information for your second home. You may need to revisit your answers for these mortgages to confirm you are receiving the most benefit from the interest and points you paid.