Multiple 1098s after refinance

[statusquo]

I'm in a similar situation as some of the folks here with multiple 1098s but my situation is slightly different. I've read a few posts but it appears some of them isn't cleared to me. I read this post https://ttlc.intuit.com/community/taxes/discussion/multiple-1098-mortgage-interest-due-to-refinance/...

Also it appears the Turbotax link to help people with multiple 1098s situation has been removed. It's no longer found on the page. This link is broken https://ttlc.intuit.com/community/loans/help/what-do-i-do-if-i-have-multiple-1098s-from-refinancing-...

Anyway, I completed my refinance in December of 2021 and got two 1098s for 2021 through the same lender (I refinanced with the same lender). The account number is different so I guess it sent me two 1098s. So the first 1098 form has a huge interest while the second 1098 is a lot smaller due to the timing of the refinance. 

Not knowing about combining the two 1098s, I added them separately as follows and then answer them based on the original loan and the refinanced loan.

Can someone help me determine if what I did is the correct way to do it since the guide in previous year from Turbotax has been removed which made me think it's not applicable for 2021 tax anymore?

Sorry this post is a bit long but I'm hoping it can also help someone like me in the future since it's based on the steps I did.

This is a primary home. 

First loan 1098 (I guess original loan) 

• Entered all boxes (1, 2, 3) as it appeared in my first 1098.
• Box 8 has my address so the loan is secured by property. Box 8 has my address. Box 7 is NOT checked.
• I have no points to deduct for this loan (for the question "tell us about any points paid to" my lender)
  • the point was deducted when I bought the house a few years ago
• Is the 1098 you're working on now the most recent for your loan?
  • I chose No (because I will enter the second 1098 after this one)
• Is this the original loan you used to buy your property?
  • I chose Yes

Second loan 1098 - same lender so I had to add a dash next to the name to distinguish from first 1098 and second 1098 

Here is what I entered as I added the second 1098

• primary home
• Do any of these situations apply?
  • None of the above
• I entered all the boxes (1, 2, and 3) as it appeared on my second 1098. Box 8 has my address. Box 7 is NOT checked.
• Box 8 has my address so the loan is secured by property. 
• Tell us about any points paid to my lender
  • My answer >> I have no points to deduct for this loan
• Now when Turbotax asks "Is the 1098 you're working on now the most recent for your loan? (if you only have one 1098, select yes"
  • I Chose Yes
• Because of my answer above, Turbotax asks me a few more questions
  • Is this the original loan you used to buy the property?
    • I chose No
  • Is this loan a home equity line of credit (HELOC) or a refinance of a previous loan?
    • Yes
  • Did you take cash out when you got this loan?
    • No (this is based on a guide below this stating "Select No if you only used the loan to refinance an existing loan") 

After that Turbotax goes back to the Home loan deduction summary which I can either add another 1098 or click "Done".  When I click Done, it asks me a few more questions

• When did you buy the home with the loan from the first lender? (which is the same lender)
  • I put the date that was in box 3 of the first 1098
• When did you buy the home with the loan from the second lender? (it's the same lender, just trying to match what I entered -- that's why I mentioned I had to add a dash to know which is which)
  • I put the date that was in box 3 of the second 1098, which was around December 2021
• So it appears after that, Turbotax next page asks me to fill in this table

	What was the outstanding loan balance on January 1st 2022? If you paid this off in 2021 enter the balance on the day you paid it off	When did you make your final payment? If you did not pay this off in 2021, leave this blank
Lender (same but for first 1098)	810,000 (amount in first mortgage before it's paid off by second mortgage)	I entered the date that was paid off based on my mortgage transaction, around December 2021
Lender (same but for second 1098)	812,000 (same as box 2 of second 1098)	I left Blank

Is this the correct way to do this in 2021? As I mentioned earlier that Turbotax removed this page https://ttlc.intuit.com/community/loans/help/what-do-i-do-if-i-have-multiple-1098s-from-refinancing-... so I'm wondering if all the previous information is also outdated.

Appreciate your help!

[RaifH]

Almost perfect. For the new loan, when it asks When did you buy the home with the loan from the second lender? Enter the date that you originally purchased the home, not the date of the refinance. If you originally purchased the home before December 15, 2017, then your entire mortgage interest should be deductible.

Once you change that answer, if you have an older loan, TurboTax should tell you all the interest is deductible. If it is newer than that, a small portion of your loan may not be deductible. If you are getting deductible interest around half the interest you paid, TurboTax may be calculating wrong based on your entries. In that case, delete the forms and re-enter them using the same answers you gave.

[statusquo]

Appreciate the help @RaifH !

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@RaifH wrote:

Almost perfect. For the new loan, when it asks When did you buy the home with the loan from the second lender? Enter the date that you originally purchased the home, not the date of the refinance. If you originally purchased the home before December 15, 2017, then your entire mortgage interest should be deductible.

Once you change that answer, if you have an older loan, TurboTax should tell you all the interest is deductible. If it is newer than that, a small portion of your loan may not be deductible.

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I just changed the second refinance date to the original purchase date but my fed and state tax/refund didn't move. My house was bought after that time so there is a cap of 750,000 due to the 2018 Tax law. So this is the reason why it didn't move? Also this is my first refinance through the same lender so I don't have many loans in the past.

If you are getting deductible interest around half the interest you paid, TurboTax may be calculating wrong based on your entries. In that case, delete the forms and re-enter them using the same answers you gave.

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How can I tell if Turbotax is doing this? While my tax/refinance for Fed and state didn't change after I updated the date for my refinance mortgage for "When did you buy the home with the loan from the second lender?", I did see the number move when I change box 1 for the first 1098 and also for the second 1098 as well (just to test). Also did you mean remove two of the 1098 forms and then re-enter or only removing the second 1098 from the refinance loan after I updated my answer above and then just re-enter that one only?

UPDATE: I'm curious to know what you mean by the above statement so I just removed all my Mortgage interest 1098s and then re-entered them one by one using the same answers I had including the updated date for the second refinance mortgage (to match with the first mortgage date). I didn't see any changes in my Fed and state tax/refund. What was interesting was if I remove my second 1098 (refinance), my Fed tax bill and state refund go down a bit. Is this normal?

[RaifH]

Yes, if your home was purchased in 2018, entering the date that you purchased the home instead of the date of the refinance will have no impact on your tax return. The same $750,000 limit applied to homes purchased in 2018 as they do in 2021, which was the date TurboTax was using before you changed it. 

If you are using TurboTax Online, you can use a rather roundabout way to see your deductible mortgage interest. Click on Wrap up tax breaks at the end of the Deductions & Credits screen. After answering a few more questions, TurboTax will say Based on what you just told us, itemizing your deductions is best for you. You can click the button below that which says Show me the breakdown of my itemized deductions. One of them will be All deductible interest, which will include your mortgage interest, as well as investment interest and mortgage interest credit certificates, but they are pretty uncommon. 

I'm unclear what happened in your update. Do you mean that you deleted them and re-entered them and TurboTax is still coming up with the same answers? If so, good, that means it probably calculated correctly the first time. When you said you removed the second and your refund went down a little bit, yes, that is normal. Your refund should go down when you delete that form since you are no longer receiving a deduction for the mortgage interest reported on that second 1098.

Sometimes, in situations like yours where the refinance is very late in the year, the taxes owed may actually increase when you enter the refinance 1098. This is not common, but it can happen, especially since it looks like you rolled some of the refinance costs into the loan making it have a slightly higher average balance than your first loan. 

[statusquo]

I'm using Turbotax premier desktop version since it gives more More flexibility.

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I'm unclear what happened in your update. Do you mean that you deleted them and re-entered them and TurboTax is still coming up with the same answers? If so, good, that means it probably calculated correctly the first time.

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I meant I initially removed the refinance 1098 and then added that again but no change in my tax (same numbers as when I fixed the date as you suggested -- Actually the numbers were the same as before I fixed the date in my refinance 1098). I was unsure so I just removed all of my 1098 forms (first 1098 and refinance 1098) and then re-entered both of them using the same answers as before including the corrected date based on your suggestion. The results didn't change my fed tax and state refund

1. Same as when I had the wrong date
2. Same as after I corrected the date

So I guess Turbotax probably calculated correctly. I'm curious if this happened before where Turbotax may have a bug and the user is forced to remove the entry to reset the calculation?

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When you said you removed the second and your refund went down a little bit, yes, that is normal. Your refund should go down when you delete that form since you are no longer receiving a deduction for the mortgage interest reported on that second 1098.

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That makes sense.

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Sometimes, in situations like yours where the refinance is very late in the year, the taxes owed may actually increase when you enter the refinance 1098. This is not common, but it can happen, especially since it looks like you rolled some of the refinance costs into the loan making it have a slightly higher average balance than your first loan. 

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that's true that my balance is a bit higher than the previous balance but the payment for the refinance loan didn't kick in until a month later. I actually didn't think about the tax implication but it seems it's the default refinance process.

So it seems that the purpose of entering the mortgage interest is to deduct it from my tax but in this case entering the refinance 1098 interest increase my federal tax (state refund goes up slightly), would it makes sense to even ignore the second refinance 1098? I'll keep what I entered but I'm just curious if this is required.

My understanding is that for any deduction that can help offset my tax, it is optional (since this is considered a gain for the IRS if I don't include it). For example, if I have a capital loss trading stocks, I can choose to not claim it as a deduction for the tax year, but if I have a capital gain, I must report it since this is taxable. So would this be the same case for my refinance 1098 here? 

[RaifH]

To see the amount of deductible interest from each of your loans in TurboTax Desktop, you can click on Forms in the upper right corner. The Home Mortgage Interest Worksheets should have all the info from each 1098. The Deductible Home Mortgage Interest Worksheet is what you want to look at. That will show the total outstanding mortgages and interest. Your deductible interest appears on line 20 and the nondeductible interest is on line 26. You can't do anything with the line 26 amount, you lose out on deducting it due to the loan balances. 

Yes, you can leave off the second loan if it yields a slightly better result. Technically, the IRS is supposed to approve you including this loan in future years after opting not to include it. You would have to get their consent in writing. In practice, I doubt they would ever notice if you left this loan off in 2021. If you want to be safe though, go ahead and include it or you might want to begin the process now to have them consent in writing to include it on your 2022 return because I have no idea how long that would take. 

[statusquo]

The net difference isn't that much so I just included in my tax return.  

Out of curiosity, does combining multiple 1098 from different lenders applicable anymore this year? I notice most of last year Q/A pages reference the article I mentioned in my first post but it's no longer available.

Thanks for your help @RaifH !

[statusquo]

Hi @RaifH 

So for this tax year 2022, just wanted to confirm some fields since I only have one 1098 from my mortgage this year. Last year I had two 1098s, one from the original loan, and another from the refinance (refinance closed around December 2021) -- both same lender. 

Still a primary home.

1. After entering all the fields that match my 1098 (boxes 1-3). 
2. Box 8 has my address. Box 7 is NOT checked. 
3. Tell us about any points paid --> I have no points to deduct for this loan
4. Is the 1098 you're working on now the most recent for your loan?
   1. yes
5. Let's get some details about this loan
   1. I answered "This loan is a refinance of a previous loan". To me, it's a new 1098 from a new loan but does this count as a refinance loan forever (until I paid off my mortgage)? this is what confuses me.
   2. "Did you use your loan for anything besides paying off the existing loan?
      1. No
6. It says "Congrats, you get a tax break" and goes back to the "home loan deduction summary page"
7. Click "Done" and it asked me "When did you buy the home with the loan from ...?"
   1. I put down the original date that I first took out the loan which is the first loan (as you suggestion before).
8. On the section "We need a bit more information to wrap up this deduction"

	What was the outstanding loan balance on January 1st 2023? If you paid this off in 2022 enter the balance on the day you paid it off	When did you make your final payment? If you did not pay this off in 2022, leave this blank
Lender (on my only 1098 for 2022)	I entered my balance on 1/1/2023	I left Blank

I follow your suggestion on step 7.1. Step 5 is what confuses me since it's not really considered a refinance last year (it was a refinance for tax year 2021). So does this mean for future 1098, it will always be a refinance loan even though it doesn't look like it?

Appreciate your help!

[PatriciaV]

Yes, this remains a refinance loan in order to preserve the date of the original mortgage. The mortgage interest limitation amount changed twice since 2017, so it's important to report the date of the original mortgage.

@statusquo