If taxpayer had type of mortgage loan that allowed for payments that did not cover the full amount of interest, thus the unpaid interest rolled into loan, would all of the interest be considered for business purposes, thus 100% deductible? Or would the portion of the loan that applied to the unpaid interest be considered personal; thus need to be prorated between personal and business expense? How are other tax preparers handling? In California, I am seeing many mortgages with this situation.
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Seems like
you are talking about the Negative Amortization Loans, or what are they called now, Option ARM loans, or some other very strange name?
Sandy -
Mortgage Interest on Rental
You are correct, that is the type of loan I am talking about. I have one client that over $10,000 rolled into loan just in 2008. Wondering how other tax preparers are handling when it is a business asset.Comment
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Rentals
I have had a few of them on rental units, and the statements have given me the current interest paid and the deferred interest paid. On my t/p scenario, it made little difference as all of the rental losses were disallowed due to the income factor, so all passive losses were carried forward to be dealt with on disposition.
I only reported the amount on Schedule E from the form 1098 that was current interest paid with the monthly payments and did not use the mortgage interest that was deferred.
On the closing statement when they sold the property, I picked up the deferred interest.
Again, mine t/p that I am referring to, did not ihave an impact on the immediate return I was filing.
For a taxpayer that was only a Schedule A, based on personal residence, I have treated much the same, and only deducted the immediate interest that was paid in the year, not the deferred interest that has been added to the loan. I have picked up the deferred interest at the time of sale.
In research I have found very little to address this issue, so I really don't know if I am right or wrong,
SandyComment
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Mortgage Interest - Rental
My question is more about determining if the negative interest that is added to the loan is considered personal rather than business. If that is the case than the interest shown on the 1098 would need to be prorated based on personal vs. business. If it is considered business, than no problem and I am in agreement with Sandy. But, if considered personal????????Comment
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Trace
Was the use of the loan proceeds part business and part personal? Then trace. If the use of the loan proceeds was all business, then all current interest will get deducted on the appropriate forms (Schedule E? My short-term memory is fried.).Comment
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Mortgage Interest - Rental
The original loan proceeds were all business; however, is the negative interest that keeps accumulating into loan also considered for business purposes?? There was no additional monies withdrawn.Comment
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Mortgage Interest - Rental
Just bringing this back to the top hoping someone will input their thoughts!!
Thanks!Comment
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