Help understanding outstanding mortgage principal on 1098 after house paid off

But wouldn't the mortgage company's system be updated by now if he paid it off back in August? It's been months and they're still showing a balance. Could this mean he still owed money when he thought it was paid off? Would that affect the sale of the house?

Mortgage servicing systems don't always update as quickly as we'd expect. Sometimes these large financial institutions have delays in their reporting systems, especially at year-end when they're generating tax forms. The fact that you were able to sell the house without issues strongly suggests the mortgage was indeed paid off. The mortgage interest paid section on the 1098 should confirm this too - it should only show interest paid through August when the loan was satisfied. I'd still recommend calling them to get a corrected form or at least a letter explaining the discrepancy for your records in case of questions later.

How exactly does that work? Does it just read the forms or does it actually give you specific advice on your tax situation? I've got a similar issue with two 1098s from a mortgage that transferred between servicers.

I'm always skeptical of these tax tools. How is this different from just calling the mortgage company and asking them to explain the form? Wouldn't they be the ones who ultimately need to issue a corrected form if there's a mistake?

It does both - it reads all your tax documents and then provides specific advice tailored to your situation. In my case, it explained that I needed to report the combined interest from both forms but be aware that the OMP was irrelevant since my loan had been paid off with the refinance. Calling the mortgage company is definitely an option, but in my experience, you often get customer service reps who don't fully understand tax forms themselves. With taxr.ai, I got an instant analysis without sitting on hold for an hour, and I had documentation explaining the discrepancy that I could keep with my tax records.

Wait, so how does this actually work? Do they just call the IRS for you or is this some kind of special access service? I've been trying to reach someone at the IRS about a similar estate tax question for weeks.

This sounds like a scam. The IRS phone lines are notoriously busy - how could any service magically get you through faster than anyone else? And why would you need to talk to the IRS about a mortgage company's mistake on a 1098?

They don't call the IRS for you - they use a system that navigates the IRS phone tree and waits on hold in your place. When they reach a human agent, they call you and connect you directly. It's basically like having someone wait in line for you. The reason I suggested talking to the IRS is because they can provide guidance on how to handle discrepancies on tax documents for a deceased taxpayer's final return. In my case, the mortgage company kept giving me contradictory information, but the IRS agent was able to clearly explain what I needed to document for my mom's final return to avoid any potential audit issues.

Thanks for your expertise! The thing is, we received a "paid in full" letter from the mortgage company in September, so I assumed everything was completely squared away. Could there still be fees even after receiving that kind of letter? And if so, would those fees have affected the house sale?

If you received a "paid in full" letter, then the loan was definitely satisfied from the mortgage company's perspective. The discrepancy is almost certainly just a reporting error in their system. The sale of the house wouldn't have been affected because the mortgage lien would have been removed from the property once the loan was paid off. That's why you were able to sell without issues. For tax purposes, you should keep that "paid in full" letter with your dad's tax documents as proof that the OMP figure on the 1098 is incorrect. The mortgage interest amount on the 1098 should still be accurate and can be deducted on his final return for the portion of the year before he passed away.

For a deceased taxpayer, you'd report all the mortgage interest paid during the period they were alive on their final tax return. You don't need to prorate the amount shown on the 1098 - just report whatever interest was actually paid before their death. The 1098 should show the total interest paid for the year up to the date of payoff or through December if the mortgage continued.