Multiple 1098, Interest Deduction Double Counting

ryanseward

Hello!

I received two 1098s this year since my mortgage was sold halfway through the year. I know that I paid (let's call it 50k) in mortgage interest through the entire year. The problem is that 1098 Mortgage Form A (the first one) is reporting I paid 25k in interest (for half the year), and 1098 Mortgage Form B (the second one) is reporting I paid 50k in interest (it is including the entire year/both lenders for some reason) . The Free Tax USA software is summing those to equal 75k. I did check the box that the first loan was sold.

Should I change the first mortgage to be 0k in interest paid, and keep the second as the 50k? Otherwise I am over-claiming the mortgage interest deduction by 25k.

Thanks for the help!

Ryan

JanaA

Hello Ryanseward!

You're absolutely right to catch this discrepancy. It sounds like you’ve identified a common issue that happens when a mortgage is transferred between lenders mid-year. Sometimes the second lender’s Form 1098 mistakenly reports the full year’s interest instead of just the portion they actually received.

I would suggest that you contact the second lender (Form B) first to request a corrected 1098. Explain that their form is showing 50k in interest, but it should only reflect the interest you paid to them during the period they serviced your loan. Lenders do make mistakes, and they can issue a corrected 1098.

If they are unwilling to issue a new 1098, or you would like to file before this is issued, I would suggest that you look at your statements to verify the actual amounts paid to each lender

From your description, it sounds like:
Lender A: $25k (first half of the year)
Lender B: $25k (second half of the year)
Total: $50k

If Lender B’s 1098 incorrectly shows $50k, you should manually change it to the correct amount you actually paid to them ($25k in this example).
Keep Lender A’s entry at $25k.
This way, the total deduction will be $50k.

If you set Lender A’s interest to $0 and leave Lender B’s at $50k, you’d still be reporting the correct total, but it wouldn’t match the IRS copy of Lender A’s 1098. That mismatch could trigger a notice. It’s better to report each lender’s interest accurately based on what you actually paid them.

I would also suggest that you keep copies of your mortgage statements and both 1098s with your tax records. This can be helpful if the IRS asks for documentation to support your claim.