1099-A, client hesitating to sign my form

[AZ-Tax]

I created a form with the following questions and a box next to each one for my client to sign:

Were the loan(s) or debt you obtained that were secured by your
former residence located at: then I list the address
Used exclusively to acquire, construct, or improve your residence above?


Was debt incurred to exclusively refinance debt incurred to acquire,
construct, or improve your former residence?

As you will notice, I entered the word "exclusively" otherwise its worded rather loosely. Wouldn't the taxpayer who used part of the debt to pay off CC's and improve their residence still be able to answer YES to the 2nd question and feel they are being truthful?

[JohnH]

I think your expectations are reasonable.

I have several forms I ask the clients to sign. I don't feel the need to justify my forms to the clients. If they don't want to sign the form, I understand fully. Maybe someone else will prepare the return for them without the separate forms. The client will find out when they go to HRB, JH, Liberty, etc carrying their original info that I give back to them.

[erchess]

I don't like disagreeing with JohnH

To me the wording of the question DOES preclude the possibility that some of the proceeds were used to pay off credit card debt.

More importantly, some of the funds could have been used to pay off credit card debt and the home equity debt could still be deductible. (Or am I wrong?) That leaves me not understanding the reason for these questions.

That aside, I do approve of the general idea of having people sign forms attesting to whatever they asked you to base the return on without providing proof.

[RitaB]

Funny Thing

I have just now spent time that I really don't have copying articles and a questionnaire for a client to complete and sign regarding vehicle expense. Glad to know I'm not the only one. Hang in there, everybody!

[JohnH]

Please disagree when you need to, and I encourage you to do so. That's how I learn that I'm off base on something. Besides, if you don't disagree with me at times, then I'd have questions concerning how carefully you are reading my replies.

[Koss]

Different Issue?

Erchess wrote:

More importantly, some of the funds could have been used to pay off credit card debt and the home equity debt could still be deductible. (Or am I wrong?) That leaves me not understanding the reason for these questions.

I agree that for most clients, home equity debt, or "cash-out" refi loans, or an old-fashioned second mortgage, is still deductible interest, even if the loan proceeds were used to pay off credit cards, or take a cruise, or buy a car, or whatever. You only start to have problems if there are more than two homes, or if the loan value exceeds the underlying property value, or... well, there are some upper limits on the amount borrowed, but few taxpayers reach those limits. In most cases, it's fully deductible.

I also agree that the wording of the question on the form drawn up by AZ-Tax does appear to rule out using the funds for anything other than purchase, refi, improvement, or new construction...

But AZ's original post is titled 1099-A.

I don't think the form is intended to determine whether the interest is deductible. I think AZ is trying to establish whether an amount forgiven in a short sale is taxable income...

If the taxpayer was insolvent at the time of the sale or foreclosure, then it's not taxable income, period. But if the taxpayer was not insolvent, then you have to wade through the new rules that deal with mortgage debt forgiveness...

And those rules may indeed require that the loan proceeds were used only for the house in question.

I haven't read those rules, so I'm not sure.

But I think we're getting confused about what the underlying issue is...

See the previous post by AZ-Tax at the following link:

http://www.thetaxbook.com/forums/showthread.php?t=11825

BMK

[dyne]

I thought his questionnaire was to provide information for interest which is
BASICALLY home equity loan interest which MUST be entered on line 4 of the
AMT form, which may increase a persons federal tax. Notice I said
BASICALLY rather than try to explain to tax preparers who already know about it.
What am I missing?

[AZ-Tax]

Let me clarify my goals with my form...

But I think we're getting confused about what the underlying issue is...
See the previous post by AZ-Tax at the following link:

http://www.thetaxbook.com/forums/showthread.php?t=11825

BMK[/QUOTE]

1st to Koss, when I wrote this post I was still in the early stages of learning how the 1099-A and the debt relief worked together. Then playing around with my ProSeries software I discovered the "cancelled debt worksheet". I checked B box then I checked C box and in both cases the death was cancelled or forgiven and since I am a CYA freak, I immedately drew up a form and added the word exclusively to make sure (or try to) there is no gray area.

Question to all of you: The other day a client comes in with a settlement statement and I see he paid off about $50K of CC's. A copy is in my file. What if this same client goes 1099-A on this loan and checks one of my boxes on my form. What is my responsibility at that point?

[dyne]

At this time of year and my age, I begin to become confused. Sorry.
Thank you all so much.

[Gretel]

Question to all of you: The other day a client comes in with a settlement statement and I see he paid off about $50K of CC's. A copy is in my file. What if this same client goes 1099-A on this loan and checks one of my boxes on my form. What is my responsibility at that point?

Well, if you know better it doesn't help if the client doesn't fill out the form correctly. I believe it would be a good idea to keep track of refi's and improvements for homes our clients have mortgages on and make this part of the question procedure.

If a client has a 1099-A or 1099-S and is not bankrupt the new rules for debt forgiveness for a main home can be used. But only debt to acquire, build or improve a home qualifies for this.

[kaimana]

Fortunately I haven't encounter a foreclosure, or similar issue, yet this year. I would think that the company issuing the 1099 would provide a detailed document of facts to the client at the time of the closing like they provide settlement statements? I would ask for a copy of the document that details the actions taken. That way the client can't falsely answer my questions. I do, however, believe in documentation of some sort. (in client's handwriting, or specific document from source, or by email from client). kaimana