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 last year 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 closed-end (MEMBER5) loans opened in the same tax year, we use the Disbursed amount on the account record as of December EOM.  (This is field DBAMT in MEMBER5.)
 
  • For open-end (MEMBER6) loans opened in the same tax year, we were faced with a dilemma.  Here were our choices:
  1. Report the disbursement limit (field DBLIMT in MEMBER6). 
    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 same as we do for MEMBER5 loans. 
    The only 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.
     
  4. 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.  
 
So with no perfect options to choose from, we ended up choosing option #3 (DBAMT) so that all loan types would be handled consistently.  
 
It’s likely that members who are questioning this amount on their form fall into the situation where multiple draws were made on the account and paid back within the first tax year.  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 (it’s not unusual for them to change or even remove a box a year after they add it!) and revisit this again later in the year as part of our usual year-end/tax preparations.  If we end up making any changes, we’ll notify you and/or include it in the Year-End Processing Guide you’ll receive this fall.
 
*SPECIAL NOTE: For new-client conversions or mergers that occurred during the year, in some cases the Conversions team can populate this balance, assuming it’s available from the previous processor.  This is handled on a case-by-case basis by your Conversion Coordinator.