Two 1098 interest forms due to refinance, entering second 1098 decreases deductible interest

[wa_filer]

I refinanced my primary home in 2024, and thus received two 1098s, one from before and one from after the refinance. The loan amount is greater than 750K in both cases.

When I enter the information from the first 1098, the amount of taxes I owe decreases due to the mortgage interest deduction. When I enter the second form, however, the amount I owe increases.

Why, when I enter the 1098 from the refinance, does the amount of deductible interest decrease? How can I resolve this? Thank you!

[DawnC]

Choose your platform below for instructions on how to handle your situation.

 

How do I handle multiple 1098 forms in TurboTax Desktop?

How do I handle multiple 1098 mortgage forms in TurboTax Online?

[wa_filer]

Thank you, yes, those are the instructions I followed. After selecting 'no' when asked if this is the most recent 1098 form, I select 'Add a Lender' and enter the information for the second loan. The amount of the deduction decreases after I enter the information the second loan.

[zomboo]

Did you check the box for 'This loan was paid off or refinanced in 2024' for the first 1098 and check the box 'This loan is a refinance of a previous loan' for the second 1098? Did you take cash out when you refinanced?

[tapr]

Hello, I'm running into the same problem. 
I followed the instructions from - https://ttlc.intuit.com/turbotax-support/en-us/help-article/import-export-data-files/handle-multiple...

I entered my first 1098. My refund was about $23K.

Then I entered my second 1098 from the refinancing. My refund reduced to about $14K. 
How's that possible?

I'm using the online version. Loan amount over $750K
Thanks!

[zomboo]

Your deduction should not be reduced just because you refinanced. You should get the same deduction as you would holding the original loan all year. Did you take cash out with the refinance? Both 1098's should have the same origination date. When entering the 1098's, pay close attention to all the questions being asked. You need to specify that the first 1098 'was paid off or refinanced in 2024' and that it is not the latest 1098. For the second 1098, check the box that says 'this loan is a refinance of a previous loan' and that it is the latest 1098.

[MarilynG1]

Here's more detailed info on Multiple Mortgage Interest Statements to help you.

@tapr 

[tapr]

Hi @zomboo 

We did not take cash out with the refinance.

The 1098s do not have the same origination dates in Box 3. The original loan was in 2023. We refinanced in 2024.

For the first 1098, I specified that it is not the latest. However, Turbotax Online DID NOT present me with an option to specify that the first 1098 'was paid off or refinanced in 2024. 

For the second 1098, I specified that 'this loan is a refinance of a previous loan' and that it is the ‘latest 1098’.
Thanks

[tapr]

Hi @MarilynG1 ,

It looks like you’ve shared the same link I referred to. I’ve already followed those instructions.

Thanks

[tapr]

I think I’m starting to understand what’s happening 🙂

When I entered the first 1098, for the question “Is this 1098 the most recent for your loan?”, I answered “No”, as advised in this TurboTax article.

Before entering the second 1098, I downloaded the return, including the worksheets, to see what was happening.

In Schedule A, line 10, I saw the full mortgage interest amount - about $72K - which matches what I paid per my first 1098.

Then, I entered the second 1098 in addition to the first one. This time, I answered “Yes” to the “Is this 1098 the most recent for your loan?” question.

After downloading the return again, with both 1098s included, the mortgage interest amount in Schedule A, line 10 was now $48K - less than the $72K I originally saw.

I paid about $75K in total mortgage interest across both 1098s. However, because my loan amount is $1,150K, which exceeds the $750K IRS limit, the deductible mortgage interest is:

750/1150 * 75K = $48K

So, when I initially entered just the first 1098 and marked it as not the most recent, TurboTax did not adjust the deductible mortgage interest - even though my loan principal exceeded $750K. That explains why my refund initially appeared higher with only the first 1098.

Does that make sense?

[zomboo]

Yes, since the first 1098 is not the latest, the worksheet values are probably intermediate. As to why it doesn't apply the limitation upon entering the first 1098, who knows? In the end, you are getting the correct deduction given this year's limitation.