2 homes in 2023 and moved state

[sorabhit]

Hi,

I lived in CA in 2023 until Dec 15 and had a house say house A until then. After Dec 15th I was advertizing the house for rental, which was rented out in Feb, 2024. I paid mortgage interest and rental tax for this property in 2023 and have 1098 form

From Dec 16th 2023 onwards, I stayed in a new house (house B) which I purchased as a primary residence and was closed in 22nd Nov, 2023. I paid interest and points and some taxes for this new house in 2023 and have 1098 form. My loan start date for this property is 11/14/2023. However, this loan was sold to other mortgage company in 01/02/2024.  I have a second HELOC loan on this same house which I paid off in Feb 2024 and have paid some interest on this loan as well both in 2023 and 2024.

Question:

In deductions and Credits section of TurboTax:

1) It asks for Home Loan Deducation summary. Will I enter both the loan information as shown in 1098 form ? 2) For the question 'What kind of property you have' for each loan information, what should I choose for loan on house A and house B ? Options are primary/second/others.

3) For question, If this is the most recent form for this loan ? Should I answer yes, since for house B the loan got sold in 2024.

4) For property tax amount, do I enter the full amount in the 1098 form of house A here or will that be counted towards rental expense ?

5) Will the HELOC loan information also go here ?

In short, can someone guide me through all the questions being asked in that section for both loans on the house A and house B.

[zomboo]

I suggest designating home B as your primary home for 2023. If you paid points when you took out the mortgage and they are listed on the 1098, you will have the option to deduct them this year instead of spreading them out over the life of the loan. I assume you don't have a 1098 from the 'sold to' lender for 2023. In this case Select 'This is the latest 1098'. Next enter your 1098 for the HELOC. Select the HELOC is secured by home B. The average balance for the HELOC should be taken over the active months of the home B mortgage regardless of the HELOC origination date (same for 2024).

Designate home A as your second home for 2023 which you converted to a rental on Dec 16, 2023. Select 'other' to the Primary/Secondary/Other question. You can claim rental expenses for 1/2 month on interest and taxes, and advertising costs.

However, your mortgage deduction is going to be severely limited for 2023 because of the short time home A is a rental and buying a new home so late in the year. Claiming rental expense for 1/2 month will help a little but it will be much better starting in 2024 when home A is a rental all year.

[sorabhit]

Thanks for your response. Do I have the option to select home A as primary as well? Given majority of the tax and interest for 2023 was paid on that.

If yes, then should I categorise home B as primary/secondary/other in that case? Are you saying this way I won’t be able to take deduction on interest and points paid for home B ?

[sorabhit]

@zomboo Thanks for your response. Do I have the option to select home A as primary as well? Given majority of the tax and interest for 2023 was paid on that.

If yes, then should I categorise home B as primary/secondary/other in that case? Are you saying this way I won’t be able to take deduction on interest and points paid for home B ?

[zomboo]

You can designate either home as your primary and the other home as your secondary for 2023. But there is no reason to treat home A as your primary because home A will clearly be a rental going into 2024 making home B your primary by default. It doesn't matter how the homes are designated or which one has more interest as far as deductions go. It all gets added together.

You can also treat home A as your secondary home for all of 2023 and treat it as a rental beginning in 2024.

I suggested making home B primary because if points are reported on the 1098, you can deduct all of them on this return instead of spreading them out. (Note: technically you have to had paid out of pocket for any reason into escrow in an amount equal to of greater than the points charged but Turbo Tax ignores this.) If you did designate home B as your secondary,  you can still deduct interest for home B but points must be spread out over the life of the loan.

[sorabhit]

@zomboo I see so may be I misunderstood your recommendation. When you said to take 1/2 month interest and taxes on home A as rental expense. Do you mean out of total 2023 interest I should calculate the prorated interest amount for 1/2 month, enter the amount for 11.5 months in deduction section and for .5 months in rental expense section ( it says in deduction section to include rental expense in other place and not there). ? Also just to confirm once more, you are recommending to designate home A  as secondary or other home ?

[zomboo]

For 2023, you have a choice for home A. Either make it your secondary home all 12 moths (no rental) or make it your secondary home for 11.5 months and rental for 0.5 months. If you select the latter, you can deduct 0.5 months (1/24th) of the interest and property taxes as rental expenses on schedule E and the rest will be deducted as mortgage interest and property taxes on schedule A. In this case, you would begin by entering your rental information under the Wages & Income tab and scroll down to Rental Properties & Royalties. I don't have rental property so I can't walk through the steps, but Turbo Tax should ask the right questions to split things up for you. When you get to the Deductions and Credits section, home A will selected as 'Secondary' because you lived there for most of the year.

To keep things simple, you can always treat home A as your secondary home all year and not treat it as a rental until 1/01/2024.

[sorabhit]

@zomboo I tried listing homeB as primary, but it is spreading the points over the length of the years. Is it because my loan amount exceeds $750K for this home ? If not, can I force it to deduct all the points ?

[zomboo]

It's not because your mortgage is over $750K. On the the 'Tell us about any points' page make sure you check the first two boxes. To deduct 100% of your 2023 points on this tax return, you must check the box "This is a new loan on which I paid points (origination fees) in 2023" and the box "I bought or improved my main home with this loan in 2023."

[sorabhit]

@zomboo Thanks! I think that was the issue.

Also if I did not paid any interest on HELOC on house B in 2023 (since payment for the interest was made in Jan 2024). Do I still need to enter the HELOC related details for 2023 ? I think that is the reason I have not received the 1098 for the same as well. Probably I can enter all the information on HELOC in 2024 when I receive the 1098 for it.

[zomboo]

You said in your initial post that you did pay interest on the HELOC in 2023. Bottom line: Lenders are not required to issue a 1098 if the interest you paid was less than $600 in 2023. If you did make a payment and paid interest in 2023 and did not received a 1098, make sure the lender isn't holding one online for download only. If the lender did issue a 1098, report the HELOC on your 2023 taxes. If the lender didn't issue a 1098 because you either did not pay interest in 2023 or you did pay interest but less than $600 in 2023, do not request a 1098 and do not enter the HELOC on your 2023 taxes.

[sorabhit]

@zomboo Sorry for the confusion. Yes initially I thought I paid the interest component of 2023 in 2023 only. But later checked the statements (as I have not received 1098) to confirm and realized that payment was made on 01/03/2024 instead. Since the actual payment was done in 2024, it will get reflected in next year return. Thanks again for all your help. Really appreciate it.