The IRS, which makes changes to tax form layouts almost every year, recently added this new informational box to form 1098 to report the balance on a mortgage account as of January 1 of that same tax year.  
 
Each year on January 1 we capture the loan balance on all loan accounts in a special file, and then when tax forms are created at the end of the year we can use that figure.  Therefore, for loans that were opened in a prior tax year, this balance is usually easy for members to understand. 
 
However, if the loan was opened during that same tax year, there obviously was no balance as of January 1 for us to capture.  Until 2019, the IRS would accept a balance of $0 for loans opened that same tax year, since they just wanted a January 1 balance.  So that's what we reported.  However, at the end of 2019 the IRS changed the rules, asking for the balance on the "date of origination" which is not a data element that even exists on CU*BASE.  So we had to make a decision on what data we could use that is stored by CU*BASE. 
 

• For all loans opened in a prior tax year, we use a field from the MBAL1098 file which is populated for all loans every year on January 1.  (Also see *SPECIAL NOTE below for special conditions such as new client conversions and mergers.)

  

• For all loans opened in the same tax year, we were faced with a dilemma.  Here were our choices:

1. Report the disbursement limit (field DBLIMT). 
   The problem with this was that members who hadn't yet borrowed against the loan would see a balance they never actually had.  
    
2. Report the amount from the first disbursement transaction posted during the year.
   The concern here was that many times, members receive their first-time disbursement in several transactions on the same day (put some in my savings, give me a check for my builder, etc.) and this technique could result in only a portion of the disbursement being reported. Plus we’re dependent on availability of transaction history, which might vary by CU.
    
3. Report the disbursed amount (DBAMT). 
   The concern here was for HELOCs where a member borrowed against the line, paid it back, then borrowed and paid it back again, multiple times within the first tax year. For those members, this would appear to inflate the disbursed amount since that is an accumulative total of all amounts disbursed on that account over time. (Note: We actually attempted to use this option one year but had too many occurrences where the balance was overstated, for HELOC loans in particular.)
    
4. Report the balance from the end of the month the loan was created - pulling the appropriate record from the MBRBAL file - to represent the closest balance held in CU*BASE.
   As we do not store balances for every day of the year, this will represent the balance closest to the date of disbursement, since normally payments after disbursement will not occur until the subsequent month. The only time we will be unable to report a balance would be on loans created prior to conversion* to CU*BASE, in the year of your conversion. In this case, we would not have the balance information in the database representing this time frame.
    
5. Report $0. 
   Although this was the technique we used prior to 2018, because of the IRS rule change in 2019 we were forced to choose one of the other options that actually reported an amount.  

   
Remember that this data is informational to the IRS only; there are no tax consequences to the member regardless of what value is shown in this box. 
 
We will continue to monitor what the IRS does with this information, as it's quite common for them to adjust the criteria year after year. If we end up making any changes, we’ll notify you and/or include it in the Year-End Processing Guide you’ll receive each fall.
 
*SPECIAL NOTE: For new-client conversions or mergers that occurred during the year, in some cases the Conversions team can populate this beginning-of-year balance, assuming it’s available from the previous processor and depending on when the account was opened.  This is handled on a case-by-case basis by your Conversion Coordinator.