How to input interest paid at closing on a primary home purchase with no 1098.
Bought a primary home in 2025. At closing I pre-paid the interest to the original lender( no points). Lender immediately sold it to a new servicer after closing.
Got my 1098 from the servicer and the interest paid in Box 1 only reflects the interest I paid to them once my mortgage payments started.
Have not received a 1098( yet) from original lender. Should I expect one? And if no 1098 shows up by January 31st, how do I insert the interest paid from closing which is reflected on my closing documents?
Best Answer
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You can deduct the prepaid interest expense to the original lender if it is related to this tax year. If it is spread over to the next tax year, then you have to deduct the prepaid interest in the next tax year. Here is the IRS instruction from Publication 936:
Prepaid interest. If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. You can deduct in each year only the interest that qualifies as home mortgage interest for that year.
If your bank hasn't sent a Form 1098 by January 31st, here's how you can enter the mortgage interest:
Choose I have other expenses on the Homeowner Expenses screen.
Answer Yes to the question that asks if you paid mortgage interest on a Form 1098 issued to another
person on the next screen.
Click Add Other Mortgage Interest on the next screen.
Enter your mortgage interest amount paid on the next screen. Then enter "FORM 1098 NOT RECEIVED" for the Name and your own address in the Address section.
This will make sure the amount shows up correctly on Schedule A.0
Answers
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Thank you. It is all related to the 2025 tax year as I closed back in May.
Should I answer yes to the mortgage was sold to another lender on the current servicer 1098 page or to the 1098 not received one?
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You should answer the mortgage was sold on the original lender that did not issue Form 1098, since that was where the mortgage was sold to the current lender.
The other thing you should be aware of is the Outstanding Mortgage Principal box. Since you purchased your home this year, you can use the Average Balance Method as defined by the IRS Publication 936. The Form 1098 may report the Outstanding Mortgage Principal as if that was the outstanding balance for the entire year, but when you purchase your home during the year, you did not have that amount of mortgage for all 12 month.
"You have to figure the average balance of each mortgage to determine your qualified loan limit. You need these amounts to complete lines 1, 2, 7, and 12 of Table 1. You can use the highest mortgage balances during the year, but you may benefit most by using the average balances. The following are methods you can use to figure your average mortgage balances."
The IRS provides some methods you can use to calculate the average balance of each mortgage in Publication 936.0 -
Thanks!
The loan is below the $750,000 limit, so does it matter to use the average or stick with what was on the 1098 that I did receive?
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Hi Bon26,
I recommend that you wait to get both your 1098s and if needed, contact the lender who had not sent a 1098 and get one. You may need to use the Average to indicate in the software you have an average mortgage balance below the $750,000 limit.
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That is what I am doing so far is waiting to see if I get one.
So far how i have things filled out based on feedback here and how the software has calculated the average balance, it is well below the $750,000 limit and qualify for the full deduction.0 -
I don't see a "Homeowner Expenses" option under the Deductions drop down…where exactly would it be?
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Hi Mindroid,
You will find Homeowner Expenses (1098) under the Itemized Deductions section.
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