Simple refinance -- how to answer questions?

[obrie572]

I took out a loan for my house a few years ago.  I did a simple refinance of this original loan for my house in 2020, but I'm finding myself confused by how to answer some of the questions.  I've dug through various posts in these forums but they give conflicting answers.

There are two questions throwing me off:

1. Was this loan paid off or refinanced with a different lender in 2020?

2. Is this loan a home equity line of credit or a loan you've ever refinanced?

I don't really understand why the 2nd question would be asked if I answered "Yes" to the first question.

How should I answer these questions for each of the 1098s?

[Cynthiad66]

These two questions play a major role in determining how much or whether you can deduct the interest.  See additional information below that will explain major changes due to the Tax Cut and Jobs Act.

You'll receive two 1098 forms. Enter both of them (first the one from your original loan, then the one from your refinance), but don't add them together.

We'll need to know which loan was paid off. When you get to that screen be sure to indicate that it was paid off. You may also be able to deduct some items on your closing statement so have it handy. Don't worry, we'll help you enter the information as you go.

The interest for a home equity loan or HELOC (home equity line of credit) is an allowable deduction if you itemize. You'll need to meet some conditions:

• The loan or line of credit is secured (put up as collateral to protect the lender) by your main home or a second home.
• The home securing the loan must have sleeping, cooking, and toilet facilities.
• The loan or line of credit must be used to buy, build or substantially improve your home. This requirement began with tax year 2018 and extends through 2025.
• You can only deduct the portion of the loan or line of credit you used to buy, build, or substantially improve the home that is used to secure the loan or line of credit. This requirement began with tax year 2018 and extends through 2025. If you’ve ever used part of this loan to pay for things other than this home, you cannot deduct the interest from that amount of the loan, even if the transaction didn’t take place this year.
• To get the full deduction, your mortgage debt doesn’t exceed $1,000,000 if you got your loan between October 13, 1987 and December 15, 2017 or $750,000 if you got your loan after December 15, 2017.
• You or someone on your tax return must have signed or co-signed the loan.
• If you rented out the home, you must have used the home more than 14 days during the tax year or 10% of the number of days you rented it out, whichever is greater.

In most cases, you can deduct your interest. How much you can deduct depends on the date of the loan, the amount of the loan, and how you use the loan proceeds.