1098-MA for Mortgage Asistance question

[nwtaxlady]

Client was unemployed and things got tight, and applied for this Mortgage Assistance and qualified. The first Month the Mortgage was paid for them and then he got a good paying job and tried to stop the 2nd payment but couldn't. He made all of his mortgage payments during the year but 2 !! So he has a Mortgage Interest Statement from the Lender of $8825 interest. He also has a 1098-MA form with $2563 in Box 1 & Box 2. He said that is 2 Mortgage payments he didn't make.

I have researched this but I am confused. So does he get to take all of the $8825 mortgage interest on Sch A?

[David1980]

He can deduct all the mortgage interest, real estate taxes, mortgage insurance premiums up to the amount of payments he paid. If it ends up that amount is greater than the mortgage payments he actually made himself you have to limit it to the amounts he paid.

[nwtaxlady]

In this scenario with the numbers I gave in the original post....

Are you saying he gets to claim the full amount $8825 that is on the Mortgage interest statement. Or the $8825 LESS the $2563 that he did not pay which would end up being only $6262 ?

Thanks...

[David1980]

Maybe. It depends on how much the payments the taxpayer did pay are.

You can't just subtract 1098-MA from the 1098 because the 1098 does not report total payments made during the year. The safe-harbor provision for the 1098-MA let's you treat the government assistance as being applied to the non-deductible portion of payments, but the taxpayer still can't deduct more than the payments they actually made themselves.

For example, let's say that the total mortgage interest for the year is $8,825, the real estate tax $5,000, the mortgage insurance premiums $2,000. So we have a potential $15,825 of Schedule A deductions. If the taxpayer made mortgage payments that are greater than $15,825 they can deduct all of it. If they made mortgage payments of only $10,000 the most they can deduct is $10,000.

So basically you need to know what the amount of the taxpayer payments was and deduct the smaller of the 1098 amount or the amount of the taxpayers payments.

[nwtaxlady]

Thank you for the explanation!

I was getting confused when I was reading the text. Just having someone explain with an example makes it clearer for me to understand.
Thanks for your help!