How to enter two 1098 mortgage interest statements for same loan

[dtae]

I've reviewed previous similar questions. My mortgage was sold to another company midway through the year. I have entered both 1098s separately, but am worried that TT is not processing them correctly.

For the first company, should I say that I owed $0 on January 1, 2019 since loan was sold/transferred midway through the year?

For the second company, "Box 2 - Outstanding mortgage principal as of 1/1/2018" is blank, presumably because loan was non-existent on this date. Should I leave blank or should I put in beginning balance (which was from mid-year)? If I leave blank, TT keeps saying the 1098 needs review.

I assume for both loans that I should say no to the question, "Was this loan paid off or refinanced with a different lender in 2018?"?

[JessicaB · Accepted solution]

See below three questions copied from original post and answers in bold. 

For the first company, should I say that I owed $0 on January 1, 2019 since loan was sold/transferred midway through the year? - YES, the first company doesn't hold the mortgage so there was no loan balance as of that date. The second 1098 would have an amount listed for the amount owed on 01/01/2019.

For the second company, "Box 2 - Outstanding mortgage principal as of 1/1/2018" is blank, presumably because loan was non-existent on this date. Should I leave blank or should I put in beginning balance (which was from mid-year)? If I leave blank, TT keeps saying the 1098 needs review. -  Enter the beginning balance from the second company, in this case the mid year number.

I assume for both loans that I should say no to the question, "Was this loan paid off or refinanced with a different lender in 2018?"? - Correct, you should not select the box for "paid off or refinanced with a different lender."  That does not apply to your situation.  You did not pay off the total balance and you did not chose to refinance; it was an automatic sale of the loan not of your doing.  

[dtae]

Thank you for the prompt and helpful reply. I note that TT is ambiguous about this in the software and should really be more clear.

[jondrobin]

If this is for the 2018 tax year, why would the amount owed as of 1/1/2019 be relevant?  Was this just a typo?  In my 2018 TT only the loan amounts for 1/1/2018 are required for both mortgage statements.  Only the loan amount as of 1/1/2018 are on the 1098 forms.  I would think you enter everything just as it appears on the 1098 forms into TT.

[hx]

This suggestion might lead to incorrect CA 540 calculation. Here's my analysis and a potential fix. Lender transferred my loan in the middle of 2018 and two 1098s were received from different lenders. I followed the instruction here by using the middle year number for the 2nd 1098 box 2, and the "CA 540 Deductible Home Mortgage Interest Worksheet" was reporting "2 Average balance of all home acquisition debt" to be well over 1M, by averaging over the sum of all 1/1/2018 loan balance and ending balance. That led to reduced interest deduction in my case. The correct way seemed to be entering 0 in the 2nd 1098 box 2. I hope someone from TurboTax can confirm the issue and the solution.

[sho20bhit]

Hi  , I had a similar situation but in my case I bought the home in march 2018 and then I refinanced it in the same year.
For the original loan in TT " Telll us about you loan balances" section , shall I put ending balance as 0 since I refinanced this loan with another lender? I am asking this because in state return it affects the total acquisition debt.

[CCap]

I’m noticing this same problem on multiple threads, and I myself am having a problem with my refinanced AND transferred loan.  I have 4 1098s for one refinanced loan and my 540 is showing me as having 4 times the debt I actually have.  Please help!

[rennie-d]

If you have to also file California income tax (540), the only way to get the right deductions for both federal & state is to combine the two 1098s into one entry in TurboTax, because it is only one loan, but with two different servicers at the beginning and at the end of the year.  For the lender name, I used "Lender 1 + Lender 2", for box 1: the sum of the two 1098s, box 2: from lender 1, box 3: the same date on either 1098, and box 11: from lender 2.  This way, the calculation by TT on the 540 Deductible Home Interest Worksheet will be accurate and the entry in the 540 California Adjustments - Residents Part II, 8a, will be correct.

[potsticker]

can the turbo tax employee help answer this?

this one is not SOLVED in my mind

how to enter 2 1098 of the same loan due to loan sale to another lender  and NOT make state thinks you have a doubled-sized loan.

thanks

[DanaB27]

Please try this solution to enter your 2 Form 1098:

1. Log into TurboTax and choose Deductions & Credits.

2. On the page “Your tax breaks”, select Mortgage Interest and Refinancing (Form 1098) and Start.

3. Delete any Forms 1098-MTGE you have already entered in the program. Then choose the button “Add a 1098”.

4. Enter the details from your FIRST Form 1098 – the one from your old mortgage company or before the refinancing occurred. Be certain to enter all the information, including the amount in Box 2 of your 1098. According to the updated 2019 instructions for Form 1098, Box 2 should show an amount. For a loan prior to 01/01/19, the amount should be the balance of your loan as of 01/01/19. For the loan taken out in 2019 (including refinance loan or when the loan is sold to another mortgage company), the balance should be as of the date of the loan origination. 

5. Continue through the interview until you reach the screen “Was this loan paid off or refinanced with a different lender in 2019?” If you’re entering the original loan, say No.

6. On the screen “Is this loan a home equity line of credit or a loan you’ve ever refinanced”, say No.

7. Continue to complete the first 1098.

8. Add your next 1098. Be certain to enter all the information, including the amount in Box 2 of your 1098. If there is not an amount in this box, please contact your mortgage lender for the amount. It is required for an accurate calculation.

9. When you reach the screen “Is this loan a home equity line of credit or a loan you've ever refinanced?” say Yes. Select the correct radio buttons and Continue to complete the interview.

10. Click Done. If presented with a followup question about the interest limitation and your loan balance is under $750,000 then your deduction is not limited - say No. If your loan is over $750,000 then the deduction is limited. Say Yes. You will need to manually calculate the adjustment. Please see Page 12 of IRS Pub. 936 for a worksheet that will help you calculate the amount. 

@potsticker

[potsticker]

Hi DanaB27

Thank you for your reply. I use turboxtax premier, so i tried to follow your direction in this software.

In turbo tax premier, after i entered the 2nd 1098. I proceed to the question
"Is this the original loan you took out to purchase this property?"
it gave me 2 choices.
1. Yes, this is the original loan I used to buy or build my home
2. No, this is the home equity line of credit (HELOC) or a loan that's been refinanced.

according to your suggestion in step9, i should choose option 2.

When I choose this option2, The software says
"Great. So which type of loan is it?
1. A mortgage loan that I've refinanced
2. A home equity line of credit(HELOC)

I choose option 1. it proceed to ask me if i took any cash out of it.
I said NO.
then this was completed.

Using this approach, when i look at the state portion, it still list my loan as almost double my actual loan
amount.

I don't think this works. My software is up to date.

Frank

[AmyC]

@potsticker I have to ask a dumb question, are you putting in the value on January 1, 2019? For the refinance, you may have to put $1 but I don't see how else your values are doubling unless you had both mortgages on January 1. You said refinance so I don't think so.

[potsticker]

Hi AmyC,

When i entered my 1st 1098 (the original one from 1/1 - 3/31/2019), i entered the original loan amount. 400k (Box2)for example
when i enter my 2nd 1098 (the refinanced one from 4/1-12/31/2019), i enter the loan amount of 395k in box2.  Box11 also has the loan acquisition date of 4/1/2019

Box3 of both 1098 has the mortgage origination date of 3/1/2014 for example.

It should be clear to turbotax that on 1/1/2019 my loan balance is 400k and on 4/1/2019, my loan balance is 395k with the new lender with whom i refinanced.

Somehow turbotax premier think that I have 2 mortgage loan totaling 795k.
that is the problem.

thank you so much for your help

Frank

[DianeC958]

There is a question that asks Is this the original loan you took out to purchase this property?  If you answer No, on your refinanced loan, that this is a home equity line (HELOC) or a loan that's been refinanced, the program will deduct all of the mortgage interest you paid.

@potsticker

[potsticker]

thank you for your help Diane

you said

" There is a question that asks Is this the original loan you took out to purchase this property? If you answer No, on your refinanced loan, that this is a home equity line (HELOC) or a loan that's been refinanced, the program will deduct all of the mortgage interest you paid."

You are correct. This would be the correct thing to do for FED filing. But when i do this, in the state filing portion, state thinks i have 2 loans totaling roughly 2 times my actual loan amount. Details below

The problem lies in the form "540/540NR Deductible Home Mortgage Interest Worksheet" in the STATE filing
If i do as you suggest (I think it is correct to do this in FED filing) , there will be 2 loan in this form.
Even though each loan only cover part of the year, one 3 month, on 9 month,
Turbotax simply use the beginning balance (and assume the loan is outstanding for 12 month) to calculate the total average balance. This is a mistake.

With this mistake, the same loan is counted twice. Each one will add to the average balanced of all home acquistion debt (line 2)
it thinks my average balance of all home acquisition is almost double what what it really is.
When this inflated average balance exceed the 1M limit in California, some of the mortgage interest are no longer deductible in the state filing. This is the problem that needs fixing

I hope this is clear now? and thanks for your help

Frank

@DianeC958   @AmyC