Mortgage Assistance Payments Revisited

[appelman]

I am reposting this with more information and more specific questions.

Form 1098-MA shows 20,416 both in Box 1 and Box 2; nothing in Box 3.

Form 1098 (Mortgage Interest Statement) shows 18,149 in Box 1 and
3000 in Box 4 (Mortgage Insurance Premiums). Property taxes paid: 5453. Ending escrow balance:
1837. Principal balance is 330,616.

Client states that he paid the bank 12,749 in 2012.

I presume nothing is reportable as taxable income. Under the safe
harbor rule, can he deduct the full 12,749 as mortgage interest, or
must he allocate it also to property tax and mortgage insurance premiums. What
makes me wonder is this from Pub. 936:

"No other effect on taxes. Do not include these mortgage assistance
payments in your income. Also, do not use these payments to reduce
other deductions, such as real estate taxes."

[David1980]

I believe it depends on whether the mortgage assistance was under the hardest hit fund / emergency homeowner's loan programs (might affect real estate tax/mortgage insurance) or if they are mortgage assistance payments under section 235 of the national housing act (would not affect real estate taxes). It seems unlikely they're receiving section 235 mortgage assistance. I believe you need a pre-1989 mortgage for section 235.

I think you'll be limited to deducting between the insurance/interest/taxes to the $12,749.

Although, I'm not sure what exactly the line "However, you are not required to use this safe-harbor method to compute your deduction for mortgage, interest, mortgage insurance premiums, and real property taxes on your main home" means. Different rules if it's a main home vs. a second home or rental?

[appelman]

Thanks, David.

The other concern is the fact that the same number is entered in Box 1 and box 2 of the 1098-MA, suggesting that the taxpayer made no payments. I suppose it may also just mean that the issuer of the 1098-MA simply didn't know.

[taxea]

I am reposting this with more information and more specific questions.

Form 1098-MA shows 20,416 both in Box 1 and Box 2; nothing in Box 3.

Form 1098 (Mortgage Interest Statement) shows 18,149 in Box 1 and
3000 in Box 4 (Mortgage Insurance Premiums). Property taxes paid: 5453. Ending escrow balance:
1837. Principal balance is 330,616.

Client states that he paid the bank 12,749 in 2012.

I presume nothing is reportable as taxable income. Under the safe
harbor rule, can he deduct the full 12,749 as mortgage interest, or
must he allocate it also to property tax and mortgage insurance premiums. What
makes me wonder is this from Pub. 936:

"No other effect on taxes. Do not include these mortgage assistance
payments in your income. Also, do not use these payments to reduce
other deductions, such as real estate taxes."

Dave is correct...you need to find out
who paid the difference; what the terms of the contract/loan were; was the mortgage modified or did TP just get help to pay it; is the "loan" principal waived over a period of time; was the mortgage in arrears at any time?

The mortgage companies use the funds received to pay down the interest first and then the principal. If the mortgage was in arrears whomever assisted may have made the arrears payment to bring the mortgage up to date. If they, by procedure, waive chunks of the loan over time then the interest paid on the 1098 is deductible to the TP.

see: Rev. Proc. 2013-16