Confused on 1098 box 3

[jyeh74]

The first time I took out a loan was 10/01/14.  So I am subject to up to $1m limit.  Then the first time I refinanced was in 2016, then again in 2017 and 2018 and 2019 and 2020.  Same original loan just refinanced many times on the same property and the mortgage balance decreased.

The first time I refinanced was in 2016.  The 1098 in 2016 box 3 = 10/01/14.  However in 2018, I refinanced two more times.  The first 1098 in 2018 box 3 = 10/01/14 but the second 1098 in 2018 box 3 = 03/20/18.  Why did the mortgage origination date change the second time around?  It is still the same loan on the same property. 

Then in 2019, I refinanced three more times.  The first 1098 in 2019 box = 3/20/18 but the second 1098 in 2019 box 3 = 02/05/19 and the third 1098 in 2019 box 3 = 05/01/19.  Why did the date change again?  Shouldn't box 3 always be 10/01/14 when the original loan was first taken out?

This is confusing because it makes it appear than the loan was taken out after 2018, which would decrease the $1m limit to $750k limit.

[ReneeM7122]

You are correct.  The mortgage origination date is the date on which the loan is funded, usually the date you closed on the property and signed the mortgage deed.  You should use this date when entering your 1098 information.

Entering multiple 1098s can be tricky, and it sounds like you've got several of them.  Here are some helpful tips to help you:

How do I handle multiple 1098 mortgage forms?

If you have multiple 1098 mortgage forms, you’ll enter them one at a time. After going through the steps with the first one, you can add a lender when you get to the Mortgage deduction summary screen. (In the case of a refinance, it's best to enter the 1098 from your original loan before the 1098 from your refinance.)

But, if they're both from the same lender, and one of them has the “Corrected” checkbox marked at the top, enter the corrected 1098 and discard or shred the other one.

What do I do if I have multiple 1098s from refinancing my home debt?

If your total home debt is under $375,000 ($250,000 for married filing separate) there is nothing new for you to do in 2020. Enter each 1098 as you normally would.

Home Debt Over $375,000

Under tax law, you are limited on the amount of home interest you can deduct. The limit is based on the loan amount and date of the origination of debt. We want to make sure we calculate this correctly for you. 

If you refinanced last year, you’ll have a Form 1098 from your previous lender and one from the lender you refinanced with. You’ll need both forms. 

Follow these steps to enter your mortgage information:

1. Gather all of your 1098 forms related to your refinance (the form from your original lender and the form from your new lender)
2. Grab a calculator and add together the box 1 amount from each form. Enter the total in TurboTax as Box 1 Mortgage interest.
3. Add the Box 5 amount from each form and enter the total as Box 5 Mortgage insurance premiums. (If you weren’t required to pay mortgage interest, these boxes will be blank on your forms and you won’t enter anything.)
4. Add the property tax paid from each form and enter it in the Property (real estate) taxes box.

Next, finish adding info for boxes 2, 3, 7, and 11 using Form 1098 for the original loan.

What if I have more than two 1098s?

You should combine all of the 1098s directly related to the refinance and enter it as one 1098.  An example of this is if you refinanced two loans into one loan. Any 1098s not directly related to the refinance should get entered separately.

What if I paid points?

Points on Loans Paid Off in 2020: Enter the points on your 1098 you have started and mark you paid off the loan when promoted.

Points on Loans on New Loans: You will want to enter a separate 1098 to cover these points paid. When prompted, enter 0.00 for Boxes 1, 2, 5, and the Property (real estate) taxes box, and checkbox 7, as you’ve already entered the details on your first 1098. For Box 3, add the date in 2020 when the loan originated.

[jyeh74]

@ReneeM7122  do you have any idea why the date changed in 2018 and 2019?  It’s a refinance.  First 1098 still showed the 2014 date but then it changed.  Should all be 2014 origination date.

[ReneeM7122]

This might be a question for the bank(s) to answer,  why has the mortgage origination date changed from 10/01/2014 to  03/20/2018 on the second 1098?

The origination date is typically the date the property was closed and the loan was funded.

[Opus 17]

A refinance means paying off the loan and getting a new loan.  The origination date of the loan currently on the property is the only correct origination date.  By refinancing after 2018, you lost the benefit of the grandfather rule.  

[jyeh74]

@Opus 17 I remember asking about this in the forum and the response is that if the principal amount is decreased and the refinance is still for the original loan back in 2014, then the $1m limit still applies.

[Opus 17]

---

@jyeh74 wrote:

@Opus 17 I remember asking about this in the forum and the response is that if the principal amount is decreased and the refinance is still for the original loan back in 2014, then the $1m limit still applies.

---

According to publication 936, the special rules for grandfathered debt only apply to debt that was originally taken out before October 14, 1987.

https://www.irs.gov/publications/p936#en_US_2019_publink1000229994

These rules state that if you had a mortgage from before that date, and you refinanced only the principle balance and took out no new money, the mortgage would still qualify.

Those rules do not apply to mortgages taken out after 1987.  For mortgages taken out after 2018, the rules just say, 

Home acquisition debt limit.

The total amount you (or your spouse if married filing a joint return) can treat as home acquisition debt on your main home and second home is limited based on when the debt is secured.

• For debt secured after October 13, 1987, and prior to December 16, 2017, the limit is $1 million ($500,000 if married filing separately).

• For debt secured after December 15, 2017, the limit is $750,000 ($375,000 if married filing separately). However, a taxpayer who enters into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, is considered to have incurred the home acquisition debt prior to December 16, 2017.

The history is that prior to a major tax law rewrite in 1986, all mortgages were deductible.  In 1986, the law changed so that only your acquisition debt up to $1 million, plus $100,000 of equity debt were deductible.  Apparently, the law was written with a grandfather clause for pre-1987 debt.  As far as I can tell, when the law changed again in 2018 to make all equity debt non-deductible and lower the limit on acquisition debt to $750,000, it contained no similar grandfather clause.

Each time you pay off one loan and acquire a new one, that is a new loan "secured by the home."  Since your last loan was secured in 2019, you are covered by the new lower limits, not the old limit. 

[jyeh74]

@Opus 17 there has been discussion that Turbo Tax has some challenges with multiple 1098s.  I have multiple refinances on the same loan for the same property.  Principal has decreased over time and no additional loans were taken out.  The advice is to add up all the mortgage interest in box 1 across all the 1098s and put it as one number.  For box 2, I’m not sure how to address it.  For box 3, the advice was to put the original mortgage origination date back in 2014, not the new dates that the refinance happened.

[Opus 17]

---

@jyeh74 wrote:

@Opus 17 there has been discussion that Turbo Tax has some challenges with multiple 1098s.  I have multiple refinances on the same loan for the same property.  Principal has decreased over time and no additional loans were taken out.  The advice is to add up all the mortgage interest in box 1 across all the 1098s and put it as one number.  For box 2, I’m not sure how to address it.  For box 3, the advice was to put the original mortgage origination date back in 2014, not the new dates that the refinance happened.

---

What tax return are you preparing?  You said in your question that your last refinance was 5/1/19.  Do you have more than one 1098 for 2020?  More than one lender for 2020?

The problem with multiple 1098s would occur if you refinanced in 2020, and had a 1098 from the old lender and a 1098 from the new lender.  If you refinanced in 2019, I would expect you to only have one 1098 for 2020 and then the calculation is handled correctly and you are subject to the $750,000 limit and not the $1 million limit.  

[jyeh74]

@Opus 17 I refinanced three times in 2019 and two times in 2020.  Same bank for the same property.  I received two 1098s for 2020.

[ihearttalavera]

That’s actually not correct. You can refinance a loan with origination date prior to 12/16/17 and still be grandfathered in at $1m limit but only up to the limit of the balance of your original loan at the time of refinance. 

https://www.google.com/amp/s/www.cbsnews.com/amp/news/deducting-home-loan-interest-trickier-under-ne...