How do other tax preparers handle the taxes and interest shown on mortgage settlement statements for loans? Do you consider the interest already included in a 1098 or do you add that amount to mortgage interest on schedule A?? I called a mortgage company yesterday for a client and was advised that the interest and taxes shown on mortgage settlement statement was not included in 1098. However, I have another client that took out a mortgage on house that was previously mortgage free, and the 1098 matches what was on the mortgage settlement statement.
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peggysioux -
Originally posted by pmedders
Most of the time the interest and taxes are included on a 1098.
let us use the taxes for example. The owner purchases the house in june. The seller was paying the taxes from january and it was held in escrow. At the closing the seller gets credit for the taxes paid. Sometime the buyer wonders why he had to pay so much property tax for owning the house for such a short period. The credit to the seller explains it.In the case of the interest it works differently. The seller gets to claim the interest he paid until closing.
A lot of times the Loan origination fees and loan discount would not be reported on the 1098. The buyer claims these points as interest not reported on the 1098
It is always advisable to check the hud statement.Brian -
Interest yes
The interest that is paid from closing date until the first mortgage payment date is usually included on the 1098. I have never seen the property taxes that the buyer reimburses to the seller show up on a 1098.
MattI would put a favorite quote in here, but it would get me banned from the board.Comment
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It's always there.I see it all the time . It is only for the period that the seller owned the property.Originally posted by Matt SovaBrianComment
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Really?
You see the property taxes reimbursed to the seller on the 1098? Are you sure you are not talking about a 1099-S? I have never, ever seen prop taxes reimbursed at closing included on the 1098. Only the taxes that were paid out of the escrow account.I would put a favorite quote in here, but it would get me banned from the board.Comment
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I guess you really need to dig
Like Matt, I have never seen taxes reimbursed to the seller reported on a 1098.
In fact, while reviewing a client's tax return from 2004, I noticed her prior preparer had only deducted what looked like a half-year's taxes that year, even though she has lived in the home for 10 years. It turns out, even though she refinanced her mortgage with the same company that year, she did it when the first-half taxes were due and the mortgage company required it to be paid out of the proceeds of her loan.
Even though they paid it and were aware of it, they never reported it on the 1098.DougComment
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Digging
I always dig into the details at least a little bit.Comment
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Interest on 1098
I have found that if the lender remains the same as on the closing statement, they usually have included the interest charged on the closing statement on their 1098 form. If the lender has changed, then you should be watching for a separate 1098 form. i.e. loan sold as soon as it is recorded. Sometimes if the amount is under $600 the lender will not issue a 1098 form.
I have recently also noticed that now certain lenders are including their prepayment penalties for early loan payoff on their 1098 form, which they did not use to do. So be careful, I have almost duplicated that "large" amount several times.
Matt is right, the property taxes on the 1098 form will most likely only include what is paid from the impound account on the loan for the t/p. The pro rates at the time of escrow closing you will have to find on the closing escrow/settlement statement. It is only on the 1099 S form that buyers/sellers share of property taxes will be noted.
Hope this helps.
SandyComment
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