Multiple 1098 for refinance

[ivory]

I refinanced my original loan in 2020 with lender A. Lender A sold my loan to lender B in 2021. I got 1098-B(s) from lender A and lender B, both with the same outstanding mortgage principal in the form, which is a bit weird.

- For the question: Is this loan a home equity line of credit (HELOC) or a refinance of a previous loan, should I answer yes for both 1098-B from lender A and lender B or only lender A, as lender A sold my loan to lender B, instead of a refinance?

- It seems the federal tax due jumped up significantly (several thousands) when I answer yes for the question above. Is that expected?

- It seems TurboTax treated the 2 1098-B forms as separated loans and asked what was the outstanding loan balance on Jan 1st, 2022. As lender A sold my loan to lender B in the middle of 2022, I am not sure how to answer the question for lender A.

[RaifH]

Since you did not actually refinance, the easiest way to report this is to combine the two 1098s and report them as one in TurboTax. This avoids any potential that your deductible interest is limited more than it should be due to the amount of mortgage principal being double-counted.

To report this:

1. In the Federal > Deductions & Credits section of your return, scroll down to Your Home and click Revisit/Start next to Mortgage Interest and Refinancing (Form 1098)
2. Answer the questions and enter the information from your Form 1098s. You can enter your original mortgage lender for the name:
   1. Box 1 Mortgage interest - Add the amounts together from both 1098s
   2. Box 2 Outstanding Mortgage Principal - Use the amount reported on the older loan
   3. Box 3 Mortgage Origination Date - Use the date reported on the older loan
   4. Boxes 5 & 6 - Use the combined totals from both 1098s
   5. Make sure Box 7 is checked
3. Answer What kind of property is this loan secured by?
4. Answer Tell us about any points. If you had points on your first loan that were not completely deducted at the time of purchase, you may continue to spread them out over the new loan.
5. Answer Yes to Let's see if this is the most recent form for this loan.
6. Answer No to Is this the original loan used to buy your property? 
7. Answer Yes to Is this loan a HELOC or a refinance? 
8. Answer Did you take cash out? If you did in 2020, you will be asked some follow-up questions to determine if the cash was used on the house. Otherwise, the interest for the portion of the loan that was cashed out is not deductible. 
9. Once you are back in the Home loan deduction summary screen, click Done. If your outstanding loan principal reported in Box 2 exceeds $750,000, you will be asked some follow-up questions.
10. Enter the original purchase date of the property 
11. Answer Do either of these apply to this loan? If the home was originally purchased prior to December 15, 2017, a higher mortgage limit applies on your home acquisition debt. 
12. Enter the outstanding loan balance reported on January 1, 2022 in the first field for the loan. You should be able to get this from a monthly statement from the new mortgage provider. Leave the second field blank.

[ivory]

Thanks for the reply! I followed the steps as advised. However, the federal tax due is still a lot more than not marking the loan as a refinance.

More specifically, when I answer "No" to "Is this loan a home equity line of credit or a refinance of a previous loan", the tax due dropped around $4k. By the way, the outstanding balance is below $750k and I purchased the house before 12/15/2017. I did not take cash out when I refinanced either.

I am actually quite confused about those 2 questions:

- Is this the original loan you used to buy your property? - Answered No

- Is this loan a home equity line of credit or a refinance of a previous loan? - Answered Yes

If someone answered no for the first question then they should always answer yes for the second question, right? It seems I got penalty by answering yes for the second question or I miss-entered/understood something.

[DaveF1006]

If you are combining two 1098 as RaifH suggests, enter yes when it asks if this is the original loan. You won't get penalized if you answer in this manner.

[JimmyTaxPayer]

I have a similar (but more complex) situation to that of the topic originator. I refinanced my loan back in 2016, then the refinance lender A sold my loan to the lender B in a month or two (still in 2016).

I had been paying the lender B since there until the middle of 2021. In the middle of 2021, the lender B sold my loan to a lender C.  Naturally, I got two 1098 forms for the year 2021. In the form 1098 from the lender B, the "11 Mortgage acquisition date" field is empty, and in the form from the lender C, this field refers to the date in 2021 when my mortgage was transferred from the lender B to the lender C.

However, I would prefer to report the two 1098s separately for each lender B and C instead of a joint report.

Now back to the "Is this loan a home equity line of credit (HELOC) or a refinance of a previous loan?" question.

I did use all of my home mortgage loan(s) to buy, build, or improve my home, so neither of the loans (from the lender B and the lender C) is a HELOC one which I understand.

About the "Is this loan ... a refinance of a previous loan?" part of the question, the loan from the lender B is not a refinance because the refinance lender A sold my loan to this lender B in 2016. The current loan from the lender C is obviously not a refinance one either. 

So for both loans from the lenders B and C the answer to "Is this loan ... a refinance of a previous loan?" is NO so the common answer to the whole question "Is this loan a home equity line of credit (HELOC) or a refinance of a previous loan?" is NO for the loans from the lenders both B and C.

On the other hand, the forms 1098 from both lenders B and C state 2016 as a mortgage origination date. This may cause me to have to say YES to the "Is this loan ... a refinance of a previous loan?" question because even if my loan was sold to B and then to C after the refinance, these loans still have the loan origination date back to 2016 - the year of refinancing.

Please help me figure this out.

Thank you!

[DMarkM1]

Enter the forms 1098 just as your forms indicate including the box 11 date.  For the old loan answer "No" to the question asking is this the latest 1098 on this debt.  For the new loan answer "Yes" to that question.  For the refinance question you can answer "Yes" to both since everything is flowing from loan A which was a refinance.  That will be proper since both loan origination dates are for 2016.