No 1098 due to interest less than $600

[manchestereagles]

We paid off our equity loan last April.  After contacting the Bank we were told we would not receive a 1098 because we paid less than $600 in interest.  We did pay $187 in interest.  Can we still deduct this without a 1098?  If so, how.

Thanks from Virginia.

[Vanessa A]

Yes, if you are itemizing your return, you can still claim the $187 in interest without the 1098-T.  You will simply fill in the form as you had one, then on the next screen check the box that says you do not have a 1098-T. 

[manchestereagles]

Thank you.  I inputted the information and was stumped when asked to fillin the outstanding balance.  I put in "0" since it was paid off,  but not accepted.  I then tried $.01, no luck, then inputted the payoff of 37K and that worked.  Not sure if that was the correct number to use.   

What concerns me is after I inputted and check block 7 that the loan secured the home, I am now getting less of a refund.  Why is this the case?

[RaifH]

If the outstanding mortgage balance on all your homes exceeds $750,000, your interest deduction begins to get limited. The limit is $1 million for homes purchased before December 15, 2017. Since you only paid $187 interest on a loan with a reported balance of $37,000 the calculation may have actually made it so that you are getting less of a deduction due to the small amount paid relative to the reported balance of the loan. 

You said this was a home equity loan. If you did not use the money to buy, build, or substantially improve your home, the interest is not deductible and should not be included. If you did use it for one of those purposes, I would report the outstanding balance as $37,000/3. This is because you paid the loan off in April, so you only had the loan for 4 out of 12 months. Therefore the average balance is 1/3 of the pay-off amount.