multiple 1098 mortgage interest due to refinance

[dalahad]

Hi, while I see the help file from turbotax mentioning that I should combine the mortgage interest in box 1 for all of my refinances (https://ttlc.intuit.com/community/loans/help/what-do-i-do-if-i-have-multiple-1098s-from-refinancing-...), I have a question that wasn't clearly addressed in the FAQ:

If we combine box 1 for the 1098 received for the original loan (that has been paid off due to the refinance),  do we still need to enter 1098 received from the new lender for the refinance? And if so, do we still combine all of the box 1 for entering in the 1098 for the new lender? 

So the scenario I am thinking of is: (1) you have a 1098 from your original lender A with $10,000 in box 1, (2) you have another 1098 from your refinance lender B with another $5,000 in box 1. (3) According to the instructions, when entering the 1098 from lender A, you would enter $15,000 ($10,000 + $5,000) in for Box 1.  So after you have finished entering in the information for lender A's 1098, would you then do another entry for your lender B (the refinance lender) in which you would then enter $15,000 again for Box 1, or would you just not enter the 1098 for your lender B?

[ReneeM7122]

Yes, if it is a refinance, you should combine box 1 of the 1098 forms.  You would not enter two 1098s - just one.

The following are instructions for handling multiple 1098 forms:

How do I handle multiple 1098 mortgage forms?

If you have multiple 1098 mortgage forms, you’ll enter them one at a time. After going through the steps with the first one, you can add a lender when you get to the Mortgage deduction summary screen. (In the case of a refinance, it's best to enter the 1098 from your original loan before the 1098 from your refinance.)

But, if they're both from the same lender, and one of them has the “Corrected” checkbox marked at the top, enter the corrected 1098 and discard or shred the other one.

What do I do if I have multiple 1098s from refinancing my home debt?

If your total home debt is under $375,000 ($250,000 for married filing separate) there is nothing new for you to do in 2020. Enter each 1098 as you normally would.

Home Debt Over $375,000

Under tax law, you are limited on the amount of home interest you can deduct. The limit is based on the loan amount and date of the origination of debt. We want to make sure we calculate this correctly for you. 

If you refinanced last year, you’ll have a Form 1098 from your previous lender and one from the lender you refinanced with. You’ll need both forms. 

Follow these steps to enter your mortgage information:

1. Gather all of your 1098 forms related to your refinance (the form from your original lender and the form from your new lender)
2. Grab a calculator and add together the box 1 amount from each form. Enter the total in TurboTax as Box 1 Mortgage interest.
3. Add the Box 5 amount from each form and enter the total as Box 5 Mortgage insurance premiums. (If you weren’t required to pay mortgage interest, these boxes will be blank on your forms and you won’t enter anything.)
4. Add the property tax paid from each form and enter it in the Property (real estate) taxes box.

Next, finish adding info for boxes 2, 3, 7, and 11 using Form 1098 for the original loan.

What if I have more than two 1098s?

You should combine all of the 1098s directly related to the refinance and enter it as one 1098.  An example of this is if you refinanced two loans into one loan. Any 1098s not directly related to the refinance should get entered separately.

What if I paid points?

Points on Loans Paid Off in 2020: Enter the points on your 1098 you have started and mark you paid off the loan when promoted.

Points on Loans on New Loans: You will want to enter a separate 1098 to cover these points paid. When prompted, enter 0.00 for Boxes 1, 2, 5, and the Property (real estate) taxes box, and checkbox 7, as you’ve already entered the details on your first 1098. For Box 3, add the date in 2020 when the loan originated.

@dalahad

[Ernimal]

ReneeM7122,

 Thanks for your response to the earlier question. I got this same answer from a call, but (at least from my point of view) I'm still left with some questions. 

Since usually the refis are with different lenders, which one is used to enter in the combination 1098? My guess is the refinance lender, but in the section below where total home debt is over 375k, it says original. I'm in a fun situation where I have 3 1098s (Lord help me) due to the original loan being sold, and then I refinanced. 

So in this scenario: Add up all three for boxes 1, 5, and real estate taxes paid and then enter the rest of the information from the original1098? 

I appreciate the help since there are so many nuances with this stuff.

[ReneeM7122]

Correct, you would start with the original 1098.  The reason is because certain things are only deductible on the original mortgage, and you don't want to lose track of that.

Here is some other information that should be useful:

Closing costs for the refinance

Unfortunately, the closing costs for the refinance cannot be claimed.  They are not tax deductible but may increase the cost basis of your home, which can benefit you in the future if you sell your home. 

However, you can deduct the below even if rolled into the loan:

For a new loan or refinance, mortgage interest paid (including origination fee or "points"), real estate taxes, and private mortgage insurance (subject to limits) are deductible.

On a refinance, you may need to amortize an origination fee (if paid) over the life of the loan. TurboTax will walk you through this process.

Enter the above expenses in the following areas:

1.   Mortgage interest paid: Federal Taxes>Deductions &Credits> Your Home, select Mortgage Interest, Refinancing, and Insurance

2.   Points (or Loan Origination Fee): Federal Taxes>Deductions &Credits> Your Home, select Mortgage Interest and Refinancing, and Insurance- (See Did you pay points in 2016 when you took out the loan?) page

3.   Real Estate Taxes: Federal Taxes>Deductions &Credits> Your Home>Property Taxes

4.   Mortgage Insurance: Federal Taxes>Deductions &Credits> Your Home> Mortgage Interest, Refinancing, and Insurance

@Ernimal

[dalahad]

Thanks for the help here @ReneeM7122! Hope you are staying safe!

[maheshbc]

Hello Renee,

Thank you for the detailed information on entering multiple 1098 mortgage forms. One question is on the screen below where we are first asked for the Lender name

Which lender name we should put in? The last lender who currently has the loan or the first lender whose loan was refinanced to last lender. E.g. I started the year 2020 with Lender ABC. Then I refinanced from lender ABC to lender MNO on 08/31/2020. However, lender MNO sold the loan to lender XYZ. So in the box "Lender name", I should enter ABC or MNO or XYZ?

Thanks a lot.

[JohnB5677]

You should use the last lender "XYZ".  This lender will come up next year (2021) and it will have a 1098 to post.

[maheshbc]

Hello John,

Thanks for your answer. One more question. IRS has all the 3 1098 forms for lender "ABC", "MNO" and "XYZ". Wouldn't IRS flag this return since this return has only 1 1098 entry instead of 3?

Thanks.

[MaryM428]

The IRS is unlikely to flag your return for this reason, but you do keep all of your 1098 forms with your other tax records, in case there is ever a question of how you entered the interest.



@maheshbc

[maheshbc]

Hello @MaryM428,

Thank you very much for the clarification.

[obrie572]

Hi -

Thanks for all the information.  I have 3 1098 forms resulting from a home loan refinance (loan > $375k) and the loan then being sold to another company.  I've followed the steps to enter a single 1098 (with the totals calculated from all 3).  In the scenario described, how should we be answering the following questions?

* Was this loan paid off or refinanced with a different lender in 2020

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

[obrie572]

Additionally, this guide -- https://ttlc.intuit.com/community/loans/help/what-do-i-do-if-i-have-multiple-1098s-from-refinancing-... -- says to combine the forms if home debt is over $750k and filing jointly.  However, the Turbotax Online page says nothing about the $750k.  It simply says "Follow these instructions if your loan amount is $375,000 or more and you received more than one 1098 because you refinanced or your loan was sold to another lender.".

If I'm filing jointly and our loan amount is under $750k, which advice should I be following?  Enter each 1098 separately or combine the 1098s?

[JotikaT2]

Your latest link indicates the same mortgage balance existed on both loans.  I recommend following the steps below to ensure the correct amounts are used for the mortgage balance at the end of the year.

Mortgage interest deduction limits

You can review your mortgage interest in the federal section of the program.

1. Select Deductions & Credits
2. Select Mortgage Interest and Refinancing (Form 1098) 
3. As you go through the screens, pay attention to the items below to ensure your items are reported correctly. 

Since you just refinanced the same loan and if your total loan balance did not exceed $750,000 throughout the year, you will need to review your input. 

Be sure that you have entered $0 for the loan that was paid off in Box 2 - Outstanding mortgage principal on the screen titled Let's get the details from your Home loan 1098.

You will also want to select that the loan that was refinanced and is no longer there at the end of the year is marked as paid off during the year. 

Please see the following link for additional information on entering the refinanced mortgage interest expense.

Refinanced mortgage input

[karenkailua]

I did a refi, and so I have two 1098s, but my new loan amount is NOT more than 375,000 (MFJ). So... what instructions do I follow? 

And, in the comment above which tells me to enter both 1098s but be sure to indicate the original loan is paid off, unfortunately TT won't let me enter $0 in the box for outstanding mortgage principal. Also, I do not get any question that asks me if the loan was paid off.

[DanielV01]

If the total of both 1098s is 750,000 or less, you don't need to do anything more than enter the 1098s as you receive them.  There has been a glitch whereby TurboTax has added together both loan amounts as if they were separately borrowed amounts (rather than a refinance of the original loan) and therefore taking the borrowed amount above the $750,000 threshold established by the TCJA in 2018, when it should not do so.  The post above yours is a workaround this issue, but you won't need it.  Simply enter the two forms as you received them, and you should be entitled to the full mortgage-interest deduction (provided, of course, that you will qualify to itemize deductions).